The first thing you must know about a car deal is that there is no “loan” if you have the dealer provide financing. The dealer is in the business of selling sales contracts to finance companies.
If you read the contract carefully, at the very top the title reads “Retail Installment Sale Contract” (RISC). The Dealer is also named as “Creditor.” Thus, the dealer is financing the vehicle on the terms contained in the contract.
Most dealers sell these contracts to banks or other financial institutions. When the dealer says, “We are working on getting you financed,” that means he is working on selling your contract to a bank or other financial institution. If the dealer has not made a gross error, or has not exceeded the bank’s lending guidelines, most often you merely get notified from a bank that “Your loan was approved,” which is another lie. Remember, they (the bank?) are merely the “Holder” of the RISC, having purchased the RISC from the dealer under an “Assignment.”
You are not the “Customer” of this bank. The dealer is the customer, and the bank will always side with the dealer because the dealer brings this business to the bank. Should the bank ask too many questions of the dealer, or not purchase a high percentage of these RISCs, the dealer will take his business to a less “nosey” bank. Of course, the less nosey banks usually charge 20-25% APR or more.
If your credit is poor, the dealer may add $2,000-$4,000 or more to the price of the car because he knows in advance based upon your credit score that his bank is going to charge him up to 30% of the amount financed as a “discount” AND the interest rate of 20-30%. Dealers who charge a higher price to consumers with poor credit scores than they would charge to cash customers are violating California law.
However, it is difficult to prove a dealer has charged that higher price. And most people who have this low credit score merely want to know what the monthly payments are going to be and do not even realize they are signing a contract for many thousands of wasted dollars. By the way, the RISC is designed to focus your attention on areas of the contract that do not contain numbers, which discourages you from asking questions about the charges you are agreeing to pay.