Where to get a car loan: Bank or dealer?
Quick insights
- Banks may offer more competitive interest rates compared to dealerships, which can result in lower overall costs.
- Dealerships can provide the convenience of "one-stop shopping" for financing and purchasing a vehicle.
- Dealers may offer financing incentives like lower rates or cash back on certain models, which banks typically do not offer.
Deciding where to get a car loan can be tricky. Let's steer through the facts to make your car-buying journey smoother.
What to know about bank financing
Understanding bank financing can be important when considering where to apply for a car loan. Banks may be seen as a stable and reliable financing source, offering competitive rates and terms that can be more favorable than those offered by dealerships. Let’s take a closer look at what banks may offer:
- Interest rates: Banks typically offer lower interest rates compared to dealership financing. This can lead to savings over time, making bank financing a cost-effective choice for many buyers.
- Pre-approval advantage: Getting pre-approved for a car loan from a bank can give buyers a better understanding of what they are eligible for and may help improve negotiating power at the dealership. This process generally involves a hard credit check and review of financial history.
- Relationship benefits: Customers with existing bank relationships—such as checking account holders and those with multiple accounts—may have access to benefits like reduced rates or waived fees.
- Flexibility: Banks may offer more flexible loan terms, from the length of the loan to the payment schedule. This flexibility helps buyers tailor their payments to fit their financial situation.
What to know about dealership financing
Dealership financing, also known as dealer-arranged financing, can be an appealing option for many car buyers due to its convenience and the potential for promotional offers. Understanding the nuances of this financing method can help you make an informed decision. Consider the following:
- Incentives and promotions: Dealerships may run promotions that can include lower interest rates or cash back offers, especially during model year-end sales. These can be tied to specific cars or timeframes.
- Convenience: Financing through a car dealer can simplify the buying process since you can arrange financing and purchase the vehicle in one place. This “one-stop shopping” approach can save time and streamline the car buying experience, making it a common choice for many.
- Negotiable rates: While dealer-arranged financing can sometimes come with higher interest rates, these rates may be able to be negotiated. It can be helpful to negotiate the terms as you would the price of the car, potentially lowering the overall cost.
- Credit flexibility: Dealerships might be more willing to finance buyers with less-than-perfect credit. They often have relationships with multiple lenders who cater to a variety of credit profiles, which may increase the chances of approval compared to traditional bank financing.
Is it better to get a car loan from a bank or a dealer?
So, is it better to finance through a dealer or bank? Ultimately, the choice between bank and dealer financing should be based on a thorough comparison of the total costs involved, the flexibility of the terms and the buyer's personal financial situation. Consulting with a financial advisor or using online loan calculators can help provide additional clarity.
The bottom line
Choosing between bank and dealer financing for a car loan depends on individual needs and circumstances. Banks generally offer lower interest rates and more flexible terms, which can make them a cost-effective option for those with good credit. However, dealerships provide convenience and potential promotional deals that can be appealing. When deciding whether it's better to finance through a dealer or bank, always compare the total costs and benefits of each option before making a decision.
