Where to get your car loan: Bank or dealer?
Before the test drive it’s a good idea to understand—and compare—your financing options
Read, 3 minutes
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. Both have their benefits and considerations, and it’s best to be informed about financing options before you ask for the keys.
Car financing at a glance
- It’s a good idea to lock in a bank loan approval before shopping for cars.
- You can use a bank loan at many dealerships.
- Being a bank’s existing customer may help you get approved.
- You’ll likely choose your car before applying for a loan directly from the dealer.
- Dealers may offer incentives to use their financing.
- You won’t get to choose the lender who services your loan.
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Research bank financing options first
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. A bank professional can help you understand the loan application and loan process, and what to expect when you go to the dealership.
Banks often advertise promotional rates for auto loans. Approval can be quick, especially if you have an exceptional or even a good credit history.
The bank will generally lock in an interest rate for a certain period, such as 30 calendar days, while you shop.
Bank loans are good at most franchise dealers and some independent ones.
You also 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 may have different rules and restrictions than banks.
Did you know?
If you’re already a bank’s customer, it can help in your loan approval process. It is common for banks to offer existing customers a rate discount or other promotion. Your bank could also offer you a convenient way to manage your car loan alongside your other financial accounts.
Pick your car, then learn about dealer financing
Once you have your car picked out and a loan approval in hand, it makes sense to consider financing options available through your dealer. The dealer will have its own car loan application and will likely 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 wants to improve its terms. You can also ask the dealer to reduce the price of the car.
Dealerships might offer extra incentives, like a 0% interest rate for a shorter period.
Sometimes dealerships will offer financing to buyers with lower credit scores. The dealer might give you extra incentives for using their financing, like a 0% interest rate, typically for a shorter period, or discounts on optional features for 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 which lender ultimately provides the loan.
Quick tip
Even if you’re leaning toward financing through your bank, it’s worth finding out about your car dealer’s loan terms because they may be competitive with your bank’s offer—which may help when you’re negotiating on the car’s price or loan terms.
Compare final auto loan offers
For each of your financing options, make sure you understand all the terms and conditions, and confirm that the costs fit within your monthly budget and for the long term.
Determine the total amount you will pay for the car over the life of each loan, as well as the potential trade-offs. 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. You can finalize your new or used car purchase, confident you’ve gotten the right deal for you.
