When financing a car, the age-old question seems to always be, “Should I work with dealer financing or obtain a pre-approved auto loan through my bank?” Well, this is a tricky question that doesn’t come with an easy answer. But there are a number of factors that can help you decide which option might work best for you. Let’s take a look at both financing through a dealer and financing through a bank or credit union:
Auto Financing Through a Dealer:
Dealership financing is simply obtaining or securing an auto loan through a dealership. Basically, the dealership is allowing you to work through their own finance companies to help you pay for the car you want. The benefit to taking this route is being able to take advantage of lower percentage rates whenever a manufacturer offers one. However, many believe that the disadvantages outweigh the advantages.
For instance: many dealers may be able to coax you into paying more for the car than what it is really worth in the form of higher interest rates if you are unable to pay the car off after a certain amount of years under the terms of the agreement of the original low APR. So if you work through one of their finance companies, you may be presented with higher interest rates or hidden fees. If you do all of your homework and stand your ground when working with a dealer you could be on top and land a great bargain, but you should always proceed with caution.
Auto Financing Through a Bank:
If you ask an expert, you’ll probably be advised that bank financing is the better route to take when financing a car. Why? Because the bank is not trying to make money on a car. It simply wants interest in the loan you’ve taken out. Also, if you finance through a bank, you can present a check to the dealer to pay for the car in full. This offers a number of advantages. One, you have a better opportunity to name your price because the dealer knows you’re paying in full; and because the auto dealer is not using it’s own lending company, there is no point to over sell to you to pay more.
Of course, it’s up to you to decide whether financing through a dealership or financing through a bank is best for you. So be sure to comparison shop and see which bank or dealership will be able to get you the best auto loan rates.