How do third-party banks issue car loans?
I have gotten a letter of credit from my credit union stating the maximum amount I can finance. Of course I don't show  the dealer the letter until after we have finalized the deal. I Then return in 3 business days with a cashiers check for the purchase price.  In one case since the letter was for an amount greater then the purchase price I was able drive the car off the lot without having to make a deposit. In another case they insisted on a $100 deposit before I drove the car off the lot. I have also had them insist on me applying for their in-house loan, which was cancelled when I returned with the cashiers check.  The procedure was similar regardless If I was getting a loan from the credit union, or paying for the car without the use of a loan. The letter didn't say how much was loan, and how much was my money.  Unless you know the exact amount, including all taxes and fees,in advance you can't get a check in advance. If you are using a loan the bank/credit Union will want the car title in their name. I have had it two way now: I got pre-approval from my credit union which just so happened to be one of the bigger vehicle lenders in the metro area.  What I found out was that the dealership (which was one of the bigger ones in the metro area) had a computer system that looked up my deal with the credit union. Basically, I signed some contracts and the CU and the dealership did whatever paperwork they needed to without me. I bought a used car and drove it off of the lot that night, and I didn't ever go back (for anything financial) Both my wife and her sister received blank checks that were valid up to a certain amount.  In the case of my sister in law, she signed the check, the dealership called to confirm funds and she drove off. In the case of my wife, she ended up negotiating a better deal with dealer finance, but I was assured she only had to sign the check, get it verified and drive the car home.
"You're circling around the answer...  The only real difference between a loddar and a privately-issued promissory note is that the loddar is issued by a recognized third party with better credit/credibility (the whole merchant/priest/farmer cartel-thing).   Private entities absolutely can and do issue their own promises to pay, and accept them, and in turn rely on those promises to make other promises. It's what you do when you charge something to a credit-card on the basis of your employer's promise to pay. You charge new tires, the tire store promises to pay its employees based on your CC company's promise to pay the tire-store, which is based on your promise to pay the credit-card company, which is based on your employer's promise to pay you, which is based on your employer's contracts with its customers, and so on...  In fact, often as not, the whole chain *never actually gets reconciled with printed cash.* The central bank never has to print or even know about these transactions. It's just checks and electronic transfers: promises all the way down, maybe with occasional cash withdrawals for popcorn at the movies or to tip the stripper or something...   That doesn't mean it's not ""real money"", it absolutely is: those promises are buying groceries and tires and making mortgage-payments and paying dentist bills and getting people to dig up stuff out of mines that will be fashioned into iPads, and all kinds of stuff.  Where this hurts most people in the brain is that they kind of accept dollar bills as axiomatically and intrinsically valuable. So trying to explain in reverse how they are the same as promissory notes or credit-certificates is like trying to convince them that a plane ticket is the same as an airplane (which is obviously not true).   That's why I started with this imaginary world without money. If you let go of any preconceptions, and stop trying to think through the analogies and don't read it trying to predictively look for the outcome conclusions, if you just read it and follow the story through, it is obvious that the *only* intrinsic difference (in that imaginary world) between apple-certificates, loddars, and privately-issued IOUs is the *credibility of the issuer*.  Trying to understand this stuff via analogy will make your head spin: Taking it all the way back to the thread-topic and the question at the top of the page, what makes it so difficult is the tendency and mental impulse to analogize money as a ""thing"" that ""is"" somewhere, and therefore has to ""go"" somewhere.   But that's an intrinsically and substantially imperfect analogy, which is what makes it hard to explain to a five-year-old. And you can't make the reality fit that analogy and stay sane. Even if you refuse to accept all this maddening abstraction and insist on only doing transactions with physical cash, or gold pieces, *the value of those markers is still 100% contingent on everyone accepting that everyone else will continue to believe that everyone else will continue to accept that currency...*  Money is essentially a promise that other people will keep. Instead of giving you food, your employer gives you a ""universal gift certificate"" that you can redeem anywhere, and everyone else will accept it, because they can in turn redeem it anywhere else. The only difference between using a bank-draft or printed dollar bill, versus writing a promise to make good yourself, is the credibility of the issuer.   That's a really difficult premise for most people to accept, because it's invisible and abstract, and seems to conflict with tangible interactions you've been doing all your life. So we have this sort of tendency to try and force the reality to fit preconceived conceptual analogies, like someone who keeps rejecting explanations of how airplanes can fly because ""that still doesn't explain how metal can be lighter than air""... it's demanding that the reality must fit a hypothesis that doesn't apply.   Hope that helps." The general rule is to spend as little as possible on transportation, as it is an expense. Many people can get by without a car at all, but you say you can not. So, what you need is the cheapest car that is sufficiently reliable for your needs. I suggest you do not need three cars. You don't need to loan cars to your children; if they need a car, they can get a job and buy one, or borrow your reliable vehicle if (but only if) you are not using it. I would suggest, then, selling two of your vehicles and holding on to one for your daily commute. Pick the car you judge to be the most reliable. However, not all decisions are made purely rationally. My vehicle is a 2012 Subaru Forester. AWD is very nice in my snowy climate, but I could have picked up a second hand vehicle for a lot less money. Similarly, you may choose to hold on to a second or even a third vehicle because you judge it a reasonable use of your money. It's an unnecessary expense, but so is coffee and you can have my coffee when you pry it from my cold, dead fingers. More generally, there's a rule of 28/36. Roughly speaking, that says that a household should spend a maximum of 28% of its gross income on housing expenses (mortage, heating, etc. etc.), and no more than 36% on total debt (the aforementioned housing, plus also car loans, credit cards, and other loan repayments). If you are spending significantly more than that, it's time to seriously consider selling one or two of your cars, plus cutting back elsewhere. If you are significantly below that, the fact that you may be underwater on your home may be a far less pressing matter. If it's possible in your case to get such a loan, then sure, providing the loan fees aren't in excess of the interest rate difference.  Auto loans don't have the fees mortgages do, but check the specific loan you're looking at - it may have some fees, and they'd need to be lower than the interest rate savings. Car loans can be tricky to refinance, because of the value of a used car being less than that of a new car.  How much better your credit is likely determines how hard this would be to get.  Also, how much down payment you put down.  Cars devalue 20% or so instantly (a used car with 5 miles on it tends to be worth around 80% of a new car's cost), so if you put less than 20% down, you may be underwater - meaning the principal left on the loan exceeds the value of the car (and so you wouldn't be getting a fully secured loan at that point). However, if your loan amount isn't too high relative to the value of the car, it should be possible.  Check out various lenders in advance; also check out non-lender sites for advice.  Edmunds.com has some of this laid out, for example (though they're an industry-based site so they're not truly unbiased). I'd also recommend using this to help you pay off the loan faster.  If you do refinance to a lower rate, consider taking the savings and sending it to the lender - i.e., keeping your payment the same, just lowering the interest charge.  That way you pay it off faster. "To answer length validity and security implications of draft checks issued and negotiated within the United States, I am heavily addressing the common erroneous assumptions of where the funds sit while they're ""in"" a draft check and how to get them out. Tl;Dr The existing answers are incomplete and in some ways dangerously misleading. Jerry can still be potentially defrauded by Tom, and even if the check is legitimately drawn and negotiable, Jerry may still experience delayed access to the funds. The funds sit in an account held by the issuing bank. As long as the bank has sufficient funds, the check does. However, there are significantly more factors that go into whether a check will be returned unpaid (""bounce""). If I hand you $5000 in cash, will you give me $5000 in cash? Probably, and you'd probably be pretty safe. How about I give you a $5000 draft check, will you give me $5000 in cash without doing anything except looking at it to verify the check? I hope not (Cash America sure wouldn't) but people sell expensive goods with the ""same as cash"" attitude. Remember: The only non-cash form of payment which cannot somehow be held, reversed or returned unpaid in the U.S. without consent of the receiving party is a payment order (a.k.a wire transfer)! The draft check is ""as good as cash"" in the sense that the money for a draft check is withdrawn from your account before the check is negotiated (deposited). This does NOT mean that a draft check will not bounce, so Jerry is NOT as secure in handing the goods to Tom as if Tom had handed him cash, as it is still a check. Jerry's bank will not receive the funds for Tom's draft check for an average 3 to 5 business days, same as a personal check. Jerry will probably have access to the first $5000 within two business days... provided that he deposits the draft check in person at his bank's branch or in a bank-owned ATM. In the United States, Regulation CC governs funds availability. Regarding official, draft, or tellers checks: ""If the customer desires next-day availability of funds from these checks, [your bank] may require use of a special deposit slip.""  Mobile deposit availability in the U.S. is NOT regulated in this way and will likely be subject to a longer hold on more, if not all, of the check! Draft checks, don't, as a habit, ""bounce"" in the colloquial sense of ""returned for insufficient funds."" This is because they are prepaid and drawn upon a financial institution's account. Banks are insolvent far less frequently than other businesses or individuals. Draft checks, tellers checks, official checks, bank checks, etc CAN, however, be returned unpaid if one of the following is true: As an aside: an institution is not obligated to honor a stale dated check, but may do so at its discretion. If you have a personal check outstanding for over 6 months, it may still clear and potentially overdraw your account. In this case, contact your bank ASAP to process a reversal. The depositing bank mis-scans the check and the issuing bank refuses the resulting data. I have seen systems mis-read which data field is which, or its contents. Also, there is the possibility the image if the check will be illegible to the issuing bank. The draft check has been cancelled (stop paid). This can happen if:  a) The check was fraudulently bought from the issuing bank using Tom's account  b) Tom has completed an indemnification agreement that the check was lost or otherwise not used for its intended purpose, without fraud having occurred against Tom c) The draft check is escheated (paid to the state as unclaimed property). This case is a subset of case 1, but will lead to a different return reason stamped on the (image replacement document of) the check. The draft check was never any good in the first place. Because of the perception that draft checks are as good as cash (they're not but are a lot better than personal checks), forgery and attempted fraud is shockingly common. These aren't actually underwritten by a real bank, even if they appear to be. The only money ""in"" them is what the fraudster can get out of you. Jerry did not properly endorse the check before presenting it for deposit or otherwise negotiating it. In my time in banking, I most commonly saw cases 3 and 4. Unlike most counterfeit cash, case 3 will fool Jerry and Jerry's teller. Tom gets an immediate payout (a car, a wire transfer, a payday loan, etc) and Jerry's bank doesn't know the check isn't valid until they call the alleged issuing bank to verify its negotiability, or in the case of smaller checks into lower-risk accounts, it is simply returned unpaid as fraudulently drawn. To conclude: Call the alleged issuing bank's verification line before handing over the goods, always properly endorse your deposits, and address what happens if one does not receive or collect on prompt payment in your contracts." "It is a legitimate practice. The dealers do get the loan money ""up front"" because they're not holding the loan themselves; they promptly sell it to someone else or (more commonly) just act as salesmen for a lending institution and take their profit as commission or origination fees. The combined deal is often not a good choice for the consumer, though. Remember that the dealer's goal is to close a sale with maximum profit. If they're offering to drop the price $2k, they either didn't expect to actually get that price in the first place, or expect at least $2k of profit from the loan, or some combination of these. Standard advice is to negotiate price, loan, and trade-in separately. First get the dealer's best price on the car, compare it to other dealer and other cars, and walk away if you don't like their offer. Repeat for the loan, checking the dealer's offer against banks/credit unions available to you. If you have an older car to unload, get quotes for it and consider whether you might do better selling it yourself. ========= Standard unsolicited plug for Consumef Reports' ""car facts"" service, if you're buying a new car (which isn't usually the best option; late-model used is generally a better value). For a small fee, they can tell you what the dealer's real cost of a car is, after all the hidden incentives and rebates. That lets you negotiate directly on how much profit they need on this sale... and focuses their attention on the fact that the time they spend haggling with you is time they could be using to sell the next one. Simply walking into the dealer with this printout in your hand cuts out a lot of nonsense. The one time I bought new, I basically walked in and said ""It's the end of the model year. I'll give you $500 profit to take one of those off your hands before the new ones come in, if you've got one configured the way I want it."" Closed the deal on the spot; the only concession I had to make was on color.  It doesn't always work; some salesmen are idiots. In that case you walk away and try another dealer. (I am not affiliated in any way with CU or the automotive or lending industries, except as customer. And, yes, this touch keyboard is typo-prone.)" It could be a couple of things besides extra principal: I seem to remember hearing that some (shady?) lenders would just pocket extra payments if you didn't specify where they were headed, but I've also been told that this just isn't true. The car dealership doesn't care where you get the cash; they care about it becoming their money immediately and with no risk or complications. Any loan or other arrangements you make to raise the cash is Your Problem, not theirs, unless you arrange the loan through them. "Repayment of student loans is usually deferred until graduation. Unless you are late or non-performing on a loan, it will make no difference to an auto loan. To get a (normal) auto loan you will need to demonstrate a source of income or have the loan co-signed by someone who does have income. As a general rule of thumb, banks care a lot more about your income than your ""credit score""."