Very few people know that there is a big hidden benefit to allowing your car dealer arrange the financing of your car purchase. The Federal Trade Commission requires most dealer arranged finance contracts to contain the following paragraph:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
This paragraph means you can sue the finance company for any claim that you have against the dealer. Particularly in these times, when dealers are dropping out of business daily, this is an important protection. If you’ve been ripped off by a car dealer who shuts down, you can still be made whole by the finance company.
For example, if a dealer sells you a vehicle that was wrecked or fails to pay off the loan on your trade-in before going out of business, you can simply sue the finance company to recoup your loss.
Not every finance contract is required to have this language. The requirement only applies to consumer transactions, not business transactions, so if you buy a truck for your business, it does not apply. It also only applies to transactions in which the amount financed is $25,000 or less, so your Bentley purchase is unlikely to be covered. The amount you can recover is also limited to the amount you have paid under the contract, although there are some ways to minimize the effect of this last limitation.
Naturally, there is an exception to the exceptions. If the language is in the contract (and not limited by other language in the contract), it is binding, even if it was not required. So a car dealer who uses the same sales contract for all deals whether for more or less than $25,000 is going to extend this benefit to you even if your purchase would not normally be eligible for it.
Or course there may be good reasons to get your own financing. You may be able to get a better rate, but when considering those benefits, also consider the possibility that your dealer may go out of business and leave you holding the bag for a big problem.