Auto Loans vs. Retail Contracts: How to Finance Your Car

When you’re considering buying a new (or used) car, it’s much more exciting to focus on the car details (cloth or leather seats? steel gray metallic or carbon black?) than how you’ll actually pay for the car. However, according to Experian Automotive, more than 84% of consumers secured financing for their new car in the first quarter of 2014.  So unless you plan to walk into a dealership and write a check or pay cash, you’ll most likely need to finance your vehicle.

What are your options? When buying a vehicle and financing, you’ll either get an auto loan or enter into a Retail Installment Sale Contract (RISC)­­­­­. While both of these choices are a way to have a car by agreeing to make payments over a specific length of time, there are distinct differences:

  • A RISC (which is the form Ally financing takes) starts as an agreement between the dealership and the customer. In such a contract, the dealership agrees to sell a vehicle to the customer who agrees to make payments for their vehicle over time in installments, with a finance charge (the cost of consumer credit, you’ll see this referred to as “APR” or “annual percentage rate”). Dealerships frequently then take the contract and immediately sell it to a financing source, such as Ally. Ally offers several options within retail contracts as well, including Balloon and Ally Buyer’s Choice.
  • An auto loan differs from a retail contract mainly because it is a transaction between a customer and a bank (or other lender) in which the bank provides funds directly to the customer. The customer then uses the funds to buy a car, and the customer agrees to repay the loan balance over a specific period of time, plus interest.

Learn more about financing a car with your dealer and Ally Auto here: Have other questions? Visit your local dealer and ask about financing with Ally!

Other Posts You Might Like:
To Lease or Buy: Which is Right for You?
Auto Financing: What to Know Before Buying or Leasing a Vehicle
Buying a New Car? 4 Extra Costs You Should Know About


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1 comment

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