Is a bank or dealer best for car loan financing?

Is a bank or dealer best for car loan financing?

When it comes time to buy your next car, the first thing you need to decide is whether to get vehicle financing directly through your bank or the dealer itself. While they both offer you the opportunity to drive away with a new car, they differ in experience, available rates and durations.

How to decide between car loans from a bank or from a dealer?

Before applying for financing, consider the potential pros and cons of both options.

bank financing

The main advantage of going directly to your bank or credit bank is that you will likely receive lower interest rates. Dealers typically have higher interest rates, so financing through a bank or credit union can offer much more competitive rates. In addition, banks and credit unions have a wide range of products, meaning you are more likely to find a financing option that works for you.

Dealer financing

When you go through the dealership, you can take advantage of several benefits that make the financing process easier. You can use the dealer’s finance office, which reduces the time spent shopping with other lenders. Dealers also often offer manufacturer deals, including discounts and other financing specials.

Car financing through a bank

Bank financing can be a good option if you want to avoid dealer fees and shop with confidence and compare rates.

Advantages of car financing at the bank

If you do it right, it can be a good idea to finance a car through a bank. Banks tend to offer low interest rates on a car loan and can be a good option if you need a large amount loan.

Disadvantages of car financing at banks

However, outside loans may take longer to process and you may need to visit a physical branch or submit your application in person. You may also 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 must first meet the eligibility requirements of your bank to be eligible for a loan. Many banks have minimums and maximums for car loans, so check to see if your chosen bank offers you a car loan that suits your needs.

It is important that you know at this moment what kind of car you want to finance. This choice has a major influence on which lender is suitable for you. Try to find a lender that offers free refinancing. In this way, if your financial situation improves or deteriorates over time, you can adjust your loan without additional hefty costs.

Finally, you need to get a car loan quote from the bank. During the quotation process you can decide which term best suits your monthly budget and you will get an idea of ​​the total costs with interest.

Is bank 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 repayment term of five years or less. Before opting out, consider the disadvantages and advantages of bank financing and compare the options.

Car financing through a dealer

A dealership may be a good option if your credit isn’t in the best shape and you don’t have a current relationship with banks or credit unions.

Dealer Financing Benefits

The big advantage of using a dealership to finance your vehicle is convenience. You don’t need to apply for financing through a bank and potentially wait days or even weeks for approval. Instead, you can just go to the dealer and drive home behind the wheel of your new car.

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

Disadvantages of dealer financing

The first drawback may seem like an advantage at first. Dealers typically offer financing terms from 60 to 72 months — sometimes with $0 down payment options. While these can provide a favorable monthly payment and initial fee, you’ll end up paying more in interest.

You will probably also get a higher interest rate. Dealer financing is more expensive than typical bank car loans, even with the same credit score. This is because dealers are incentivized to send you to certain lenders, even if you can find a better APR elsewhere.

How to finance through a dealership

Dealers partner 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 dealer has with a lender, and the dealer will do much of the heavy lifting.

When you are approved for financing through your dealership, you will be directed to the dealer financing department to finalize the deal. This process varies depending on the dealership, but you will likely need to fill out a few forms and provide proof of income and assets.

Once approved, the dealer’s finance manager or a dealer’s auto-lender representative can help you review the loan details and complete the loan.

Is dealer financing for you?

Financing your vehicle directly through the dealer is the right option if you want to avoid the heavy lifting involved in buying vehicle financing. It’s also easier to qualify for, so if you have bad credit, dealer financing may be more accessible.

Tips for taking out a car loan

Whether you are applying for your car loan directly from the dealer or through a bank or credit union, it is important to apply for prequalification 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 data to complete the process.

Checking your credit report is an important step in 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.


Once you pre-qualify, you can shop around for a loan at the rate you were offered. Many car loan rates are negotiable, and the same can be said for the cost and 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.

Next steps

Both dealers and banks can be viable options when it comes to financing your new car. But they each have their pros and cons, so be sure to shop around to find the best interest and repayment terms.

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