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Getting a new car is exciting but the financing process can be a headache. Should you go with the convenience of dealership financing or the potentially lower rates of a bank loan? This guide will help you navigate the options and choose the best path for your needs.
Bank Financing: Lower Rates, More Flexibility
Banks offer a plethora of benefits for car buyers seeking financing. Here are some of the key advantages:
Lower Interest Rates: Banks typically offer lower interest rates than dealerships, potentially saving you thousands of dollars over the life of your loan. This is because banks don’t need to mark up rates to turn a profit, unlike dealerships.
Wider Selection of Lenders: You’re not limited to just one lender when you go through a bank. You can compare rates and terms from multiple banks to find the best deal for your situation. This gives you more bargaining power and ensures you’re getting the most competitive rate possible.
Relationship Discounts: If you already have an account with a bank, you may be eligible for a relationship discount on your auto loan rate. This can further reduce your borrowing costs.
Pre-Approval Advantage: Getting pre-approved for a car loan from a bank gives you a significant advantage when negotiating with dealerships. You can walk in knowing exactly what you can afford and avoid the pressure of on-the-spot financing decisions.
Extended Loan Terms: Compared to dealerships, banks frequently offer longer loan terms, which can result in lower monthly payments. This can be helpful if you’re on a tight budget.
No Dealer Markups: Banks do not increase the cost of your auto loan, in contrast to dealerships. This implies that you won’t be charged any additional fees or costs beyond the actual cost of borrowing.
Transparency and Security: Banks are regulated by the government, which means they must adhere to strict lending practices and disclose all loan terms upfront. This provides you with peace of mind and ensures you’re not being taken advantage of.
Dealership Financing: Convenience and Speed
While banks offer numerous advantages, dealerships also have their own set of benefits:
One-Stop Shop: Getting your financing through the dealership is incredibly convenient. You can handle everything in one place, from choosing your car to finalizing your loan. This saves you time and eliminates the hassle of dealing with multiple entities.
Manufacturer Incentives: Dealerships often have access to special financing deals and manufacturer incentives that you won’t find at banks. These can include lower interest rates, cash back offers, and lease deals.
Flexibility for Bad Credit: Compared to banks, car dealerships may make it simpler for people with bad credit to be approved for a loan. Dealerships frequently collaborate with a larger variety of lenders, including subprime loan specialists.
Faster Approval Process: Dealership financing can often be approved much faster than bank loans. This is because dealerships have streamlined processes and can often make decisions on the spot.
Relationship Building: Establishing a relationship with a dealership can be beneficial in the long run. You may be able to get better deals on future car purchases or service appointments.
The Verdict: Weighing Your Options
The ideal location for your auto loan ultimately depends on your unique situation. A bank loan is probably a better choice if you prioritize obtaining the lowest interest rate and have good credit. Dealership financing, however, might be a better option if speed, convenience, or exclusive manufacturer incentives are more important to you.
Here are some additional factors to consider when making your decision:
- Your credit score: If you have excellent credit, you’ll likely qualify for the best rates at both banks and dealerships. However, if your credit is less than perfect, you may find it easier to qualify for a loan through a dealership.
- The amount of time you have: If you need to get your car loan quickly, dealership financing may be the better option. Bank loans can take longer to process, especially if you need to provide additional documentation.
- Your comfort level with negotiation: If you’re comfortable negotiating with dealerships, you may be able to get a better deal on your car loan. However, if you prefer a more straightforward process, a bank loan may be a better choice.
Whichever option you select, before deciding on a final course of action, make sure to shop around and compare rates from several lenders. This will ensure you’re getting the best possible deal on your car loan.
Remember, the most important thing is to choose a loan that fits your budget and your needs. Don’t be afraid to ask questions and compare your options before making a decision.
Happy car shopping!
Pros of auto financing through a bank
Getting an auto loan with a bank or other direct lender can help you get a better deal on interest rates. And you don’t need to have an account to qualify with most banks.
- Examine your options: A number of direct lenders provide auto loans, and most of them don’t require an account in order to be eligible. This enables you to evaluate prices and identify the best terms for an auto loan.
- Autopay discounts: Some credit unions and banks, like U. S. Bank, when you set up autopay through your account, give you a discount on your APR.
- Potentially lower APR: Bankrate has examined offer rates from a few lenders, with some starting at less than 6%. If you have a preapproved offer from the bank, a dealership is likely to try to beat the rate your bank offers.
Pros and cons of auto financing through a third-party lender
In addition to saving you time and effort during negotiations, being preapproved for a car loan from a direct lender will probably result in a better interest rate than what you could get at a dealership.
To get the most out of your auto loan, get preapproval from a bank, credit union, or online lender first, even if you think you might use dealer financing. Since they are not required to mark up their rates in order to make a profit, outside lenders are frequently able to offer more favorable interest rates than dealerships.
Some banks offer a relationship discount on your annual percentage rate if you already have an account. But even if yours doesn’t, some banks will look at your banking history when evaluating your application. Having a stable deposit pattern and no overdrafts in your banking history may improve your chances of approval.
The application process is straightforward for most major banks and credit unions. Many provide online applications that let you see your likely rates and get prequalified for an auto loan. After, you can apply for preapproval. Your credit score will drop a few points temporarily, but you’ll be able to negotiate like a cash buyer at the dealership.
How To Use a Credit Union or Outside Bank to Finance Your Car in 2021
FAQ
Is it better to get a loan through your bank or dealership?
Why do car dealers want you to finance through them?
What are advantages of selecting a loan from a car dealership?
Is it harder to get car loan from bank?
Should you get a car loan at a dealership?
Most buyers need to get an auto loan to pay for a car or vehicle. While it may be convenient to get a loan through your dealership, it’s not your only option – and you’ll generally get better interest rates and loan terms by comparing offers between different lenders. The car shopping process often begins at the dealership.
Should you get financing before you go to a car dealership?
Working directly with a bank to discuss financing before you head to the dealership could potentially help you save more money because it allows you to compare interest rates. Securing financing ahead of time also means there’s no chance of a dealer increasing the loan rate as compensation for its part in the process.
Is dealership financing a better deal?
While you will likely get an auto loan with a more competitive rate through a bank or credit union, there are instances where dealership financing could be a better deal. The dealer offers promotional financing, as low as 0 percent APR (annual percentage rate), on select new models when you finance in-house.
Can a bank loan be used at a dealership?
Bank loans can usually be used at any franchise or independent dealership, or in some cases, a deal with a private seller. You might be able to take advantage of incentive offers if you use their financing. You might get a better deal — or a quicker approval — if you’re already a customer at the bank.