Is it Better to Get a Car Loan on Your Own or Go Through the Dealership?

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Carefully choose between dealership and bank financing for a car.
Carefully choose between dealership and bank financing for a car. (Image: Jupiterimages/Photos.com/Getty Images)

Though getting financed for a car through the dealership has some advantages, car buyers may want to consider getting their auto financing through a bank in order to save money. However, there are a number of factors that determine which is the better deal. Consumers should understand the pros and cons of financing through both a dealership and a bank to determine which source of financing is best for their specific situation.

Bank Financing Advantages

Banks and credit unions traditionally offer the best deals on car loans. However, as with any loan product, consumers should contact a few different banks and credit unions to determine which is offering the best interest rates. Consumers should not limit themselves to just local financial institutions. There are a number of websites that consumers can use to compare rates on car loans from banks and credit unions around the country. By becoming pre-qualified for a car loan, consumers can reduce part of the anxiety of the car shopping experience when arriving at the dealer. Buyers also can use the pre-qualified loan terms when negotiating with the dealer’s finance office.

Dealership Financing Advantages

The primary advantage of dealership financing is that it provides a one-stop shopping experience. Car buyers can come to the dealership, select a car to purchase and arrange financing all in one trip. This is particularly attractive for those buyers who are only able to car shop on weekends. As with bank loans, buyers using dealership financing should work with multiple dealerships to get the best deal possible on both the vehicle and the financing. Dealerships may have access to special financing programs to assist buyers with bad credit, as well.

Credit Problems

Whether a car buyer is going to use dealership or bank financing, the interest rates offered to them will correspond to the buyer’s credit score. Before contacting a bank or dealership about financing, buyers should check their credit report to make certain that the information on the report is accurate. When possible, buyers should make certain to pay all bills on time and reduce their debt levels in the months before applying for a car loan. Having a large down payment can also help to get loan approval and make the loan terms more attractive.

Other Considerations

Dealerships often have the ability to provide special financing deals arranged through a car’s manufacturer. For instance, the dealer may be able to offer buyers no-interest loans for a fixed amount of time. In this scenario, dealership financing may be more attractive than bank financing. Consumers should understand that dealers typically can only offer no-interest incentive loans to buyers with above-average credit. Banks and credit unions may also offer special low-rate loans from time to time. Regardless of where the car buyer arranges financing, the buyer should carefully review the loan documentation for pre-payment penalties.

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