When buying your next car, the first thing you need to decide is whether you want to take out vehicle financing directly through your bank or through the dealership itself. While both give you the opportunity to start driving a new car, they differ in terms of experience, rates available and repayment terms.
How to decide between bank or car loans
Consider the potential pros and cons of both options before applying for funding.
The main benefit of going direct to your bank or lending bureau is that you are likely to get lower interest rates. Dealers typically have higher interest rates, so financing through a bank or credit union can offer much more competitive rates. Additionally, banks and credit unions have a wide range of products, which means you’re more likely to find a financing option that works for you.
As you walk through the dealership, you can take advantage of several perks that will make the financing process easier. You can use the dealership’s finance office, saving you time that you would spend shopping at other lenders. Dealers also often offer manufacturer offers, including rebates and other financing offers.
Car financing through a bank
Financing through a bank can be a good option if you want to avoid merchant fees and feel confident when shopping and comparing prices.
Advantages of bank car financing
When done correctly, financing a car through a bank can be a great idea. Banks offer rather low interest rates on a car loan and can be a good option if you need a large loan.
Disadvantages of car financing by bank
However, foreign bank loans may take longer to process and you may need to visit a physical branch or apply in person. Even if you have bad credit, you may not qualify for a loan. Consider the urgency of your vehicle loan and the health of your credit score before deciding to finance through a bank or credit union.
How to finance yourself through a bank
If bank financing is the right choice for you, you must first meet your bank’s eligibility requirements to qualify for a loan. Many banks have minimums and maximums for car loans, so check to see if the bank of your choice can offer you a car loan that suits your needs.
It is important that you know at this point what kind of car you want to finance. This choice will have a big impact on which lender is right for you. Try to find a lender that offers no-fee refinancing. If your financial situation improves or worsens over time, you can adjust your loan without high additional costs.
Finally, you need to get an offer for a car loan from the bank. During the quoting process, you can decide which term best fits your monthly budget and get an idea of the total cost with interest.
Is bank car financing right for you?
Borrowing money from a bank can be a good option if you need a larger loan amount, a low interest rate, or a term of five years or less. Before signing off, consider the cons and pros of bank financing and be sure to compare the options.
Car financing through a dealer
A car dealership can be a good option if your credit rating is not in the best of shape and you don’t have a current relationship with a bank or credit union.
Benefits of Dealer Financing
The main benefit of using a dealership to finance your vehicle is convenience. There is no need to apply for financing through a bank and you may have to wait days or even weeks for approval. Instead, you can just go to the dealership and drive home behind the wheel of your new car.
Also, if you have a co-signer, you can have that person come with you and make the buying process a little less stressful.
Disadvantages of dealer financing
The first disadvantage may seem like an advantage at first. Merchants typically offer 60- to 72-month financing terms — sometimes with $0 down payment options. While these can make for a cheap monthly payment and upfront cost, you end up paying more interest overall.
You will also likely get a higher interest rate. Dealer financing is more expensive than typical bank car loans – even with the same credit rating. This is because merchants have an incentive to send you to certain lenders even if you could find a better APR elsewhere.
How to finance yourself through a dealer
Dealers work with major banks, online lenders, and credit unions to offer auto loans through their own financing division. This means you can finance your vehicle through a plan the dealership has with a lender, and the dealership does much of the heavy lifting.
If your dealer approves you for financing, you will be directed to the dealer’s financing department to complete the deal. This process varies by dealership, but you’ll likely need to fill out some forms and submit your income and asset statements.
Once approved, the dealership finance manager or a representative of the dealership’s auto lender can help you review the loan details and complete the loan.
Is dealer financing right for you?
Financing your vehicle directly through the dealer is the right option if you want to avoid the heavy lifting associated with purchasing vehicle financing. It’s also easier to qualify for. So if you have bad credit, dealership financing may be more accessible.
Tips on getting a car loan
Whether applying for your car loan directly from the dealer or through a bank or credit union, it’s important to apply for pre-qualification and do your research.
If you are applying for financing through a bank or credit union, use 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 to complete the process.
Checking your creditworthiness is an important step in financing a vehicle. A good credit rating not only helps you qualify for a lower interest rate, but also tells you how much to expect for the vehicle.
Once you’ve prequalified, look for a loan at the interest rate you were offered. Many auto loan rates are negotiable, and so are fees and the length of the loan. Many lenders will compete for your business and you can use this to your advantage. Don’t settle for a lender that doesn’t offer favorable terms.
Both dealerships and banks can be viable options when it comes to financing your new car. But they all have their pros and cons, so shop around to find the best interest rates and repayment terms.