How do third-party banks issue car loans?

Question

If you buy a (new or 'certified' used) car at an American dealership licensed by a manufacturer (and, of course, your credit is good), you can borrow money from the manufacturer's associated bank, such as Ally (for General Motors vehicles) or Toyota Financial (for Toyota vehicles). This is streamlined: the seller has a lender's agent working in the same building, and they work in tandem, issuing a loan, preparing out a mortgage (lien) for the buyer to sign, and selling the car. (I think the seller may actually be the lender's agent, actually.)

But other banks are also willing to lend car buyers money. How would that work, then?

• Does the outside bank send a signatory to the dealership to issue a check to the dealer and collect the signed mortgage? (I find it hard to fathom that banks would send people out for this.)
• Does the buyer go to the bank ahead of time and collect a check made out to the seller? (But then the bank has no lien agreement in hand.)
• Does the buyer buy the car for a simple IOU and the bank's telephoned promise to pay, and then go to the bank to issue the mortgage? (But then the dealer has little guarantee of payment when it sells the car.)

What are the practical logistics?

Answer 1

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.

Answer 2

I have had it two way now:

Situation One

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)

Situation Two

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.