Is a bank or a dealership better for car loan financing?

When it comes time to buy your next car, the first thing you need to decide is whether you’ll go directly through your bank or through the dealership itself for auto financing. While they both give you the option of driving away with a new car, they differ in experience, available rates, and loan terms.

How to choose between a bank or dealer car loan

Consider the potential pros and cons of both options before applying for financing.

Bank financing

The main advantage of going directly to your bank or credit bank is that you are likely to benefit from lower interest rates. Dealerships tend to have higher interest rates, so financing through a bank or credit union can offer much more competitive rates. Along with that, banks and credit unions offer a wide range of products, which means you’re more likely to find a financing option that’s right for you.

Dealer financing

When you go through the dealership, you can take advantage of several benefits that make the financing process easier. You’ll be able to use the dealership’s finance desk, which will save you time shopping around with other lenders. Dealerships also often offer manufacturer offers, including rebates and other financing specials.

Car financing via a bank

Financing through a bank can be a great option if you’re looking to avoid dealer fees and feel confident shopping around and comparing rates.

Advantages of bank car financing

When done correctly, financing a car through a bank can be a great idea. Banks are more likely to offer low interest rates on a car loan and can be a good option if you need a large loan amount.

Disadvantages of bank car financing

However, external bank loans may take longer to process and you may need to visit a physical branch or submit your application in person. You also might not qualify for a loan if you have a bad credit score. Consider the urgency of your car loan and the health of your credit before deciding to finance through a bank or credit union.

How to finance through a bank

If financing through a bank is the right choice for you, you will first need to meet your bank’s eligibility criteria to qualify for a loan. Many banks will have a minimum and maximum auto loan, so check to see if the bank you have chosen will offer you an auto loan that suits your needs.

It is important that at this stage you know what type of car you intend to finance. This choice will greatly affect which lender is right for you. Try to find a lender that offers free refinancing. So, if your financial situation improves or deteriorates over time, you can adjust your loan at no additional cost.

Finally, you will need to get an auto loan quote from the bank. During the quote process, you can decide which term best fits your monthly budget and get an idea of ​​the overall cost with interest.

Is auto bank financing for you?

Borrowing money from a bank can be a good option if you need a larger loan, a low interest rate, or a repayment term of five years or less. Consider the pros and cons of bank financing before signing and be sure to compare the options.

Car financing through a dealership

A dealer may be a good option if your credit isn’t at its best and you don’t have a current relationship with banks or credit unions.

Advantages of concession financing

The main benefit of using a dealership to finance your vehicle is convenience. You won’t have to apply for financing from a bank and potentially wait days or even weeks for approval. Instead, you can just drive to the dealership and drive home in your new car.

Plus, if you have a co-signer, you can bring that person with you and make the buying process a little less stressful.

Disadvantages of Dealer Financing

The first disadvantage may initially seem like an advantage. Dealerships typically offer 60-72 month finance terms, sometimes with $0 down payment options. While these may be a favorable monthly payment and upfront costs, you’ll end up paying more interest overall.

You are also likely to get a higher interest rate. Dealer financing is more expensive than typical bank auto loans, even with the same credit score. That’s because dealerships have an incentive to refer you to certain lenders, even though you might find a better APR elsewhere.

How to finance through a dealership

Dealerships work with major banks, online lenders and credit unions to offer auto loans through their own finance division. This means that you will be able to finance your vehicle through a plan the dealership has with a lender, and the dealership will take care of much of the heavy lifting.

Once your financing is approved by your dealer, you will be directed to the dealer financing department to finalize the transaction. This process will be different depending on the dealership, but you will likely need to fill out a few forms and submit your proof of income and assets.

Once you’re approved, the dealership’s finance manager or a representative from the dealership’s auto lender can help you review the loan details and finalize the loan.

Is dealership financing right for you?

Financing your vehicle directly through the dealership is the right option if you’re looking to avoid the hefty expense that comes with finding vehicle financing. It’s also easier to qualify, so if you have poor credit, financing through the dealership may be more accessible.

Tips for taking out a car loan

Whether you’re applying for your auto loan directly from the dealership or through a bank or credit union, it’s important to prequalify and shop around.

Get prequalified

If you are applying for financing through a bank or credit union, take advantage of the prequalification process. This process is usually offered online and is a great way to get an idea of ​​how much you can borrow. You will need your income, savings, and other details at hand to complete the process.

Checking your credit report is an important step when financing a vehicle. Not only will good credit help you qualify for a lower interest rate, it will also show you how much you should expect to pay for the vehicle.

Compare the prices

Once you are prequalified, search for a loan at the rate you have been offered. Many auto loan rates are negotiable, and so are fees and loan terms. Many lenders will compete for your business, and you can use this to your advantage. Don’t settle for a lender who doesn’t offer favorable terms.

Next steps

Dealerships and banks can be viable options for financing your new car. But they each have their pros and cons, so be sure to shop around for the best interest rate and repayment terms.

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