Can a Car Dealership Refuse Outside Financing and Make You Use Their Financing?

When buying a car, individuals will encounter various financing options. Usually, every car dealer, broker, or supermarket offers a finance scheme. Each program comes with its advantages and disadvantages. Buyers can choose the option that best suits their needs.

Apart from those needs, a crucial factor in the decision is the costs associated with each scheme. Most buyers will aim to decrease or minimize those costs.

The issue with various car financing options is that it creates confusion between buyers. Moreover, each source involves benefits and drawbacks, which can be confusing. The reason why various finance sources exist to fund car purchases is to provide buyers with variety.

However, some options may also seek to exploit buyers and charge them extra. Therefore, they should steer clear of them.

Sometimes, buyers may also find their dream car. However, the car dealership may refuse to sell them if they don’t use their in-house finance.

Some buyers may wonder whether car dealers are allowed to do so. The answer to that question may be more straightforward than they think. However, it is crucial to define various terms before discussing whether car dealers can refuse sales.

What is Car Financing?

Car financing refers to the process of funding a car purchase. As mentioned, buyers have several options when acquiring a new vehicle. They must take out a loan to pay for the transaction.

However, this financing does not constitute one financial transaction for the buyer. This deal is separate from the car purchase. Therefore, car financing differs from car purchases.

Car financing starts when a buyer wants to purchase a car. Usually, they can go to a financial institution that will lend them the money.

In exchange, the buyer must pay interest to the lender over time. Furthermore, some lenders may also charge a fee to provide the loan. Due to the wide availability of these institutions, buyers can have several options.

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The higher number of options can significantly complicate the decision between a financing source. However, it can also allow buyers to choose the best alternative. On top of that, it also implies that the lenders cannot exploit users since they have other options.

However, that might not always be the case. In some cases, buyers may have limited options when financing their car purchases.

The primary selection issue for most car financing sources is the associated costs. Some sources may provide cheaper loans than others. However, they may also be more challenging to obtain. In some cases, buyers may choose financing that the car dealership offers.

However, this choice can be more expensive due to the hidden charges. Moreover, the dealer may include a higher interest rate as a margin to profit from the financing.

In most cases, the financing offered by car dealers is more expensive than the market alternatives. Therefore, most buyers try to avoid them and seek better financing options.

However, some car dealers may limit their sales to in-house financing only. Buyers may not have other options but accept that finance source or look elsewhere. While some may consider it unethical, it is not illegal for dealers to do so.

Who Offers Car Financing?

As mentioned above, various parties can provide car financing to a buyer. Usually, the buyer can choose the financing source to fund their purchase.

They can contact their bank or credit union for finance. Once buyers choose the car they want to buy, they can get an idea of how much it costs. They can then provide that amount to their bank or credit union.

The bank or credit union will then provide preapproval for the loan. It comes through a letter confirming the amount the buyer can borrow. On top of that, this letter will contain the interest rate the buyer must pay when holding the finance.

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However, this interest rate is not final and is a part of the preapproval to provide the buyer with a general idea. The bank or credit union may increase the rate once the buyer purchases the car.

The interest rate that the financial institution offers depends on various factors. Usually, the buyer’s credit score plays a vital role in deciding the interest rate they must pay. The lender checks this score before approving the loan to the buyer.

However, this process does not get completed at the time of preapproval. Therefore, the initial rate in that letter may differ significantly. The final interest rate offered by these parties reflects the market rate for a given borrower.

Buyers can also obtain finance through a car dealership. However, this option only applies when the dealer provides the facility. If they do, car dealers can arrange finance through outside lenders. However, the buyer does not go through the same process for getting loans through those lenders.

Instead, they get their approval on the spot. Since this loan is riskier for the car dealership, they may charge a higher rate for the facility.

Car dealers often offer in-house credit to buyers to finalize their car deals. While they earn from selling the car, they also profit from the loan provided to the buyer.

Essentially, the buyer pays for two parties due to the loan. The first is the institute that offers the underlying facility. However, this payment occurs through the car dealer. The second payment is to the dealership. This payment includes a premium over the base rate charged by the original lender.

Can a car dealership refuse outside financing and make you use their financing?

Some car dealerships refuse outside financing. Essentially, they enforce their in-house financing on buyers. Some buyers may consider this practice unethical due to the implications involved.

However, they cannot counter this issue legally. In contract law, car dealerships can refuse a sale as they play. It implies that the buyer does not have any means to counteract the issue.

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Car dealerships can also make buyers use their financing. This implication is also similar to the one above. Usually, the car dealerships that gain on in-house financing push towards enforcing users to select that option.

In these cases, buyers do not have any alternative but to purchase the car using that finance. However, they can always look for another dealer that does not enforce such terms.

Essentially, every car dealership can enforce any terms on a contract as long as they are legal. Therefore, they can set any prices or conditions on a car deal. This legal right comes from the law that allows them to conduct their operations as they please.

The buyer, in contrast, has the legal right to accept the dealer’s conditions. While it may cause losses for the car dealer, it does not stop the dealership from using wayward terms.

In business practices, car dealerships enforcing it is not considered unethical. For them, it means business, and they can conduct their operations as they want.

For the car dealer, enforcing such terms usually means higher profits. Usually, car dealers use this option when they have lowered the price of a car. To compensate for the lower margins, they enforce in-house financing to recover costs.


Purchasing cars can be a complex process when it comes to financing. Buyers have various options and must choose between external or internal finance sources. Usually, car dealers allow buyers to use either of these options.

However, some dealerships may also make buyers use their financing. While it may sound illegal, car dealerships can use such conditions. The law does not stop them from doing so, as they have the right to do so.