Dealerships don't determine loan interest rates or loan approvals. While you may have already signed a loan contract and motor vehicle paperwork, you don't actually own the vehicle until the dealer receives payment from the lender. The lender may decide to offer different lending terms than the dealer originally quoted.
Application Approvals
When you finance through a dealership, the dealer accepts a credit application from you and submits your application electronically to one or several lenders. The dealer can also check your credit score to determine the best lender for you. For example, if you have poor credit, the dealer might choose a subprime lender; if you have excellent credit, the dealer may suggest a credit union. Dealerships also have experience with the lenders; they know the requirements for debt-to-income ratios, loan-to-value ratios, minimum income and credit score requirements. A dealer may think a lender will approve you for a certain rate, but the lender may change its offer if you didn't meet certain criteria.
Stipulations
The lender often changes its lending offer based on stipulations. If the dealer sent your application after business hours, the lender may have sent back a counteroffer to the dealership. Even during business hours, a lender may provide a list of additional items it requires to approve your loan, such as proof of income or residency. If you over-estimated your income, your loan application might approve your loan, but at a different tier, increasing your interest rate. To obtain the loan for the car you want to buy, you'll have to agree to the interest rate.
Dealer Scams
Jeff Ofstroff of CarBuyingTips.com warns that dealers may try to scam poor credit customers into signing a low interest-rate loan contract, only to call the borrower who has the vehicle to increase the interest rate or down-payment requirement to secure the loan. Some dealers might attempt to make more money from a committed buyer this way, although other dealers actually run into issues with the lender. If you feel like the dealer is taking advantage of you, don't sign the loan contract and return the vehicle. If you don't sign the revised contract, the dealer won't receive payment for the vehicle.
Options
Decide if you want to pursue the loan based on the change of interest rate and monthly payments. You might also apply directly to the lender who approved you to ask questions and negotiate your rate, although the dealer likely already tried to do so. If you have excellent credit, apply to a lender of your choice. If you have poor credit, consider using a co-signer. If you're unhappy with the interest rate, bring the vehicle back to the dealership. If you don't sign the new lending contract, you haven't bought the car. Even with a higher interest rate, try to negotiate with the dealership to reduce the price of the vehicle to keep the original payment quoted.
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