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Is it better to finance your purchase through a bank or dealership? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering interactive financial calculators and tools as well as publishing objective and original content, by enabling you to conduct your own research and compare data for no cost – so that you can make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies who pay us. This compensation could affect how and where products are displayed on the site, such as, for example, the order in which they may appear in the listing categories and other categories, unless prohibited by law. This applies to our mortgage or home equity products, as well as other home loan products. But this compensation does not influence the information we provide, or the reviews that appear on this website. We do not cover the universe of companies or financial offers that may be available to you.
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4 min read Published August 18, 2022
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Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces.
Reviewed by Mark Kantrowtziz Reviewed by Nationally recognized student expert in financial aid
Mark Kantrowitz is an expert on student financial aid, the FAFSA as well as 529 plans, scholarships as well as tax benefits for education and student loans.
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When the time comes to purchase your next car you need to first decide whether you will go directly through your bank or through the bank itself to get car financing. While they both give you the opportunity to drive away with a new car, they differ in experience, available rates in addition to loan lengths. How to decide between bank or dealer auto loans Think about the benefits and disadvantages of both prior to submitting an application for financing. Bank financing The primary advantage of going direct to your banks or is that you’ll likely get less interest. Dealers typically have higher interest rates, since dealers will add a markup to the interest rate whenever they connect you with the lender. Additionally the fact that lenders and credit unions have a wide range of products, which means that you’re more likely to find an option for financing that is suitable for you. Dealer financing Once you’ve gone through the , you can avail a number of advantages that make the financing process easier. You can utilize the dealership’s finance office, which cuts down the time you would spend shopping around with other lenders. Dealerships are also known to provide manufacturer discounts, which include rebates, as well as other . Auto financing through a bank The bank you finance your car through can be an excellent option if you are looking to avoid and feel confident shopping around and making comparisons of rates. Benefits of bank auto financing If done properly using a vehicle loan from banks can be an excellent idea. Banks tend to have low interest rates and are a great alternative if you require an additional loan. There are some disadvantages to auto financing from banks. However, outside bank loans may take longer to process and you may need to submit your application in person. It is also possible that you will not be eligible for an loan when you have low credit scores. Be aware of the urgency of your car loan and the overall health of your credit prior to deciding to finance it through an institution like a credit union or bank. How to finance through an institution If financing with a bank is the right choice for you, then you first must meet the eligibility requirements of your bank in order to be eligible for an loan. Many banks will offer the auto loan minimum and maximum, so check if your chosen bank offers the auto loan that fits your needs. It is important that you know what car you intend to finance. Certain banks will only finance cars bought through dealership partners and be able to impose mileage and age limitations. Try to find an lender that offers fee-free refinancing. This way, if your financial situation improves or deteriorates in the course of time, you can adjust your loan without additional hefty costs. You will also need to obtain a loan from the bank. During the quote process, you can decide on which term is best suited to your budget each month and also gain an understanding of the overall cost with interest. If you decide to move forward with the application and the lender is likely to require documents including W2s, recent pay stubs or proof of address, as well as an official ID. Are bank auto loans the right choice for you? A bank loan may be a viable alternative if you require an increased loan size, low interest rate or a repayment time of at least five years. Consider the drawbacks and advantages of bank financing prior to taking the final decision. Be sure to evaluate your alternatives. Auto financing through a dealership is an ideal option if you’re credit isn’t in the best condition and you don’t have a current relationship with any bank and credit unions. Benefits of financing through a dealership The principal advantage of using a dealer to finance your car is the convenience. You won’t have to apply for financing through banks and wait days, or even weeks, for approval. Instead, you’ll just visit the dealer and then drive home behind the car of your . If you’ve got an, you can let the person accompany you to make the purchase process less stressful. Drawbacks of financing through dealerships The initial drawback might appear to be a good thing. Dealerships generally offer financing options — sometimes with $0 deposit options. While these can make for an attractive monthly payment as well as beginning costs, you’ll pay more in interest in the long run. Also, you are likely to pay a higher interest rate. The cost of dealer financing can be higher than typical auto loans — regardless of the credit rating. Dealers both apply a markup to the interest rate and are enticed to refer you to specific lenders even if they could offer a better APR elsewhere. How do you finance with the dealerships Dealerships partner with major banks, online lenders and credit unions to offer car loans through their own financing division. This means you’ll be in a position to finance your vehicle with a deal with the company with an lender and the dealer will take care of the bulk of the work. When you are accepted for financing by your dealer, you’ll be directed to the dealership’s finance department to finalize the transaction. The process for approval will vary based upon the particular dealership, but you’ll likely have to fill out several forms and submit your evidence of income and assets. After you have been approved, the finance manager or representative from the dealership’s auto lender can assist you with reviewing the loan details and finalize the loan. Is dealership financing right for you? Financing your vehicle directly through the dealer is the right choice if you want to avoid the heavy lifting associated with searching for car financing. It’s also simpler to obtain, and in the event that you’re a poor credit holder, financing through the dealership may be more accessible. Tips for taking out an auto loan Whether you are applying to get your auto loan directly through the dealership or through a bank or credit union it is crucial to apply for prequalification and then shop around. Get prequalified If you are applying for financing via a bank or credit union make use of the procedure. This process is typically offered online and is a great opportunity to determine of how much you will be in a position to get. It is necessary to have your income, savings and other personal information to be able to complete the process. Shop around Once you prequalify you can shop around for an loan that is at the same rate as the one you were given. Many auto loan rates are negotiable, as can be said for the charges and duration of loan. There are many lenders competing for your business, and you can leverage this advantage to your advantage. Do not settle for an lender that doesn’t provide favorable conditions. Next steps Both dealerships and banks can be viable options when it comes to financing your new car. They each have their advantages and disadvantages So be certain to do your research to find the most favorable rates and terms for repayment. Find out more
This article was generated by using automated technology. It was then thoroughly verified and edited by an editor from our editorial staff.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances through providing concise, well-researched and well-researched content that break down complex topics into digestible chunks.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized Student Financial Aid expert
Mark Kantrowitz is an expert on student financial aid, the FAFSA as well as scholarships, 529 plans, education tax benefits and student loans.
Nationally anerkannt student financial aid expert
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