Where to get your car loan: Bank or dealer?

Whichever you choose, it’s best to compare car financing options before the test drive.

You’re ready to buy a car, but first you need to figure out the right way to finance it. The good news is that you have options: You can get your car loan from a bank or credit union, or you could go through the dealer. While both have their benefits and considerations, you’re always better off being informed about your financing options before you ask for the keys. Here are three car financing tips that will help you make the best decision for you.

Research bank financing options before you start car shopping

Start by talking to a bank. You can usually apply for a bank loan even if you don’t have a specific car picked out yet. An expert there can help you understand the loan application and loan process, and what to expect when you go to the dealership. Approval can be quick, especially if you have exceptional or even good credit history, and the bank will generally lock in an interest rate for a certain period of time, such as 30 calendar days, while you shop.

Banks often advertise promotional rates for auto loans. And if you’re already a customer, it can help in your loan approval process. It is common for banks to consider relationship history when making lending decisions, and they might offer you a rate discount or other promotion. It could also be convenient to manage your car loan alongside your other financial accounts. For example, you could set up due date reminders and automated car loan payments and get help in person whenever you visit a branch.

Make sure you understand where you could use the loans you are considering. Bank loans, for example, are good at most franchise dealers and some independent ones. You can also use a bank loan if you purchase the car from a private seller.

If you want additional options, you could explore auto loans offered by online sources, although you may not be able to get full details about a loan offer until you have a specific car picked out. Online lenders also may have different rules and restrictions than banks.

Once you choose a car, learn about dealer financing

Once you have your car picked out and an approval in hand, it makes sense to consider financing options available through your dealer. The dealer will have its own car loan application, and is likely to send your car loan application to multiple lenders. Each lender will pull your credit report, just as your bank did. They’ll then send the dealer their offers.

If you get a great financing offer that way, you could see if the bank might want to improve its terms to win your business. You can also try asking the dealer to knock down the price of the car a little.

Sometimes, dealerships will offer financing to buyers with lower credit scores. The dealer might also give you extra incentives for using their financing, like a 0% interest rate typically for a shorter period of time, or discounts on optional features to your car such as a security system or seat warmers.

Just be aware that if you choose financing through your dealer, you won’t have control over who ultimately provides the loan. So if the lender doesn’t have nearby locations, you won’t be able to handle questions or problems about your loan in person.

Compare your final auto loan offers, then make your choice

For each of your financing options, make sure you understand all the terms and conditions, and confirm that the costs fit within your budget upfront, each month and for the long-term.

Determine the total amount you will pay for the car over the life of the loan. Then, see if the trade-offs are worth it. You may not mind paying more overall by having a longer-term loan in exchange for lower monthly payments. Or maybe you’re all about the bottom line, in which case a rebate or lower interest rate might be the deciding factor.

Once you’ve weighed the possibilities, you’ll be ready to make a well-informed choice about whether it’s better to finance through a dealer or a bank. You can finalize your new or used car purchase, confident that you’ve gotten the right deal for you.

Close Disclaimer

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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