Buying a car can be a big decision. In addition to finding the perfect car, you need to decide how you’re going to pay for it. There are two main ways: bank and dealer financing. Which one is better for you?
Should you do financing through dealership since you’re already there anyway looking at a car? Would a bank or credit union be a better option? We’ll examine the pros and cons of each and help you make the best decision for your situation.
You need a car, and you deserve the best loan for it, so find out which method is best for you.
Financing through Dealership Provides More Options
When you walk into a dealership and go through the process of picking out a car, the seller wants you to get financing through them. Why? It benefits the dealership.
A dealership has partnerships with many different banks, credit unions, and other lenders. When you choose your car, the salesman can send your information to dozens of lenders and see which ones are a good match for you.
For the buyer, this gives you loan options. The different lenders have varying interest rates, qualifications for loans and terms. You can get several different loan estimates and pick which one is the best.
It all depends on your credit score, the lender and the dealership. The less of a risk you are because you have a good credit score or a high down payment, then the better deal you can get for your loan.
The one thing to watch for is there may be some money going to the lender that you’re not aware of. For example, if the lender gives you a loan rate of 3 percent, the salesman may quote you 4 percent with that one percent going to the dealership.
It’s important to know everything in the loan agreement before signing it.
Financing Through a Bank is Straightforward
When you finance through a bank, you’re going after a single loan. There are not the endless lenders that a dealership has access too. In fact, the bank you go to may be one that dealership uses.
There are two ways you can get financing through a bank. Before you set foot on a dealership, you walk into a bank and get preapproved for a loan. You’ll go into it knowing exactly how much you can spend.
This helps the dealership tailor a car for you within your price range. You don’t have to worry about picking out the perfect car and not being able to get it because you can’t get approved for a loan that big.
You can also work with the bank to get a loan you need. For example, you can tell them how much you want, and they can tell you what down payment you would need, etc.
The other option is to visit the dealership first and find the car you want. For example, you’re thinking about financing a Ram 1500 but have a bank in mind for the loan.
You visit the bank and tell them about the truck, cost, etc. They’ll work with you to get a loan that works.
The benefit of using a bank or credit union is it’s personal. You’re dealing with a loan officer, and they have no incentive to get you for a bigger loan or more expensive car. When you have a problem, there is a person you can talk to and ask questions.
Buy Here Pay Here Financing
The last method of dealership financing is Buy Here Pay Here. With this option, the financing is through the dealership itself and not an outside lender. This type of financing is for people that need a car but don’t have the credit score to get a loan.
Instead, you have a monthly payment that must be made directly to the dealership. These loans tend to have higher interest rates because they are the last resort for people who need a car.
Before going to a Buy Here Pay Here dealership, trying getting financing more traditionally because the rates will be lower.
You’ll know a Buy Here Pay Here dealership because they’ll advertise that bad credit doesn’t matter.
If You Want the Best Deal Try Both
There’s no law that says you must pick one or the other for your car loan. Head to the bank first and get preapproved and then go to the dealership and see what their lenders can do for you.
The goal is to get a loan that works out best for you. If the dealership lenders have a better deal, then go with them. If not, then stick with the bank.
Getting preapproval doesn’t mean you’re committed to the bank. It just means you are preapproved for that amount of money based on certain criteria. You don’t have a loan yet.
The only time the only choice is a bank loan would be if you’re buying a car from a person and not a dealership. If you want to purchase a car from an individual, then the bank will want to inspect the vehicle a determine if it’s worth the price before giving you the loan.
Things to Do Before Getting a Loan
Before you go anywhere for a loan, determine how much you can afford. The bank or dealership may approve you for a loan, but you still need to repay it. Know what your limit is for a monthly payment and don’t go over it.
You’ll also want to have a down payment ready. The more you can pay upfront, the less you must borrow. It also makes you less of a risk since less of the car is financed.
Choose What’s Best for You
When it comes to choosing to finance through a dealership or a bank, it’s really about who gives you the best deal. You now everything you need to know to make the decision.
If you want to learn more about auto financing, then please explore our site.