The bank or dealer quandary.
The two most common options for obtaining financing for a vehicle are through either a bank or a dealer. Neither is necessarily better or worse than the other, but in either case, shopping around is essential in receiving the best deal. So, hopefully we can not only help you find your next car, but also help you answer the question, “Should I finance a car through a bank or a dealer?”
Financing a car through a dealer...
One of the greatest benefits of financing a car through a dealer, as opposed to a bank, is the convenience of getting both your loan and your vehicle in one place. Once you find your vehicle, you can work with that same dealership to obtain financing, in house, from the car dealer’s “stable” of lenders (or in some cases directly from the dealer in the case where they provide direct loans).
What is the dealer financing process?
The process for financing a loan through a dealer is basically the same across the board:
- You find the car or Truck you’re interested in purchasing at a dealership
- You negotiate with the salesperson to try to lower the price on the car
- You and the salesperson agree on a price and any options and extras that are to be included in the deal
- The salesperson will try to arrange financing for you through the Financing Department of the dealership
- You will, hopefully, get approved for the loan and drive off in your car, all in one place – easily and quickly.
Dealer financing: Things to keep in mind.
If you choose to work with a dealer to obtain financing, here are some things that you may want to keep in mind:
- Taxes and fees are not included in the price you negotiated—so the total cost that you will pay for the car may be more than you anticipated.
- Always focus on the car’s price, and not your monthly payments.
- If you need an extremely long loan term just to be able to afford the car, you may want to consider a more reasonably priced one. A shorter-term loan could save you hundreds, if not thousands of dollars in interest over the life of the loan.
- A dealer may offer you optional add-ons that may be good to have (including extended warranties, rust proofing, paint protection, vehicle-theft tracking systems, and more), but they will cost you additional money. You will have to determine which ones make sense for you to purchase, and which ones you should skip on.
- Your interest rate will tack on more money to your loan. If you have a very high interest rate, you may end up spending a significant amount of additional money every month.
- Typically the interest rate you get through a dealer will be a bit higher than the interest rate you get through a bank or credit union. The convenience of not having to shop around with lenders to get financing may be worth the higher rate, however.
- Finding a quality lender or dealer can start with Car.com. We work lenders and dealers, and try to connect them to the car buyers.
By choosing in-house financing from car dealers, you could get your new car, and drive off in it on the same day you decide to purchase from a dealer. But, all of the above are factors that you should consider when you want a car loan from either a bank or a dealer.
Bank or Credit Union financing: Things to keep in mind.
If you choose car financing through a bank, you would need to get approved for your loan before you can get your car. The process is, generally, as follows:
- You would apply for a loan through a bank. You aren’t tied to the bank that you currently use, but, if you have a solid history with them, you may want to consider working with that bank. If that bank sees that you have been financially reliable in the past, they may be more willing to approve you for a car loan in the future. But if you haven’t had a great history with your bank, you may not be able to get approved, or you could be approved with a very high interest rate.
- Note that you may need to shop around with a few financial institutions to get the best interest rate.
- If you were approved for a bank loan, you could choose a car that fits within the loan amount that you were approved for. If you want a car having a price that exceeds that loan amount, then you would be responsible for the difference upfront in the form of a down payment.
- Next, you would use your loan to purchase a car through a dealership (usually) or a private seller. You should be able to use the loan you’ve been approved for at most dealerships.
- Once you have chosen a car, you would negotiate the price, and work with your salesperson to complete the sale. They would take the amount of money they need from your loan, and you would make your monthly payments to the bank that you received your loan from.
Negotiate your interest rate.
Many people don’t know that you cannot only negotiate the price of your car, but you can also try to negotiate your interest rate. So, even if the bank gives you a certain interest rate, you could try to get it lowered. (This is also true for the rate offered you by a dealer from their Finance Department.)
You could always start with a bank, see what they could offer you, and determine whether or not a dealership can locate financing for you to match (or better) the offer from the financial institution.
You could try to get pre-approved for a loan, without the commitment. This can give you an idea of what you may qualify for, in terms of financing, if you aren’t sure where you stand.
Consider your unique situation.
Whether you should finance a car through a bank or a dealer will depend on your unique situation, and how you would prefer to go about obtaining financing. At Car.com, we would recommend that you allow us to try to connect you with quality lenders and dealers in your area. Our application process is free, and if we can connect you to multiple lenders and dealers, you could compare their offers, and choose the best one. Or, you could continue to shop around because you are under no obligation to work with any of your connections. We hope to be able to help you get a good deal, and fair financing, on your new car.
