Hardly anyone pays in full for a vehicle these days. Instead, they take out a loan for the car they want. This loan is paid off over a specified amount of time with interest. While the principles behind the automotive loan process are fairly simple, deciding where to get financing isn’t. Generally, you can choose to get financing through the dealership, or take out a loan with a bank or credit union. There are pros and cons to each. Here’s what you need to know.  

Financing Through the Dealership

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Dealers work with lending partners to ensure that customers can get the financing they need to get a new car. These partnerships are designed to be advantageous for both the dealer and the lender, so generally there is a small markup on these loans. While that may make you think going through the dealer is a bad decision, sometimes even with the markup dealership financing is still a better deal, because dealers can offer these loans at a low rate.

Dealerships work with partner lenders to get wholesale rates on loans, meaning they have the potential to give you a better deal than the bank or credit union. Still, this is not always the case and you need to come to the financing table with research and be able to compare offers.

Financing Through the Bank or Credit Union

Auto loan application

The bank or credit union can always give you a loan if your credit is good enough, and usually, you’ll be able to get a pretty good deal. This is especially true if you already bank or have a loan for something else, like a home. Also, with a bank or credit union loan, you can shop being pre-approved for a certain amount of money. This helps ensure that you won’t face an embarrassing moment at the dealership should you be turned down for a loan.

Additionally, banks and credit unions will sometimes work with you to reduce your interest rate or get you a shorter loan term, which means you’ll pay less in the long run. Because the bank isn’t trying to sell you a car, they’re more focused on getting you the financing you can easily afford. Some dealerships are more interested in making a sale than finding you the best option, though this is not universal and some dealers work hard to get the best deal for you.

Know the Market Rate before You Negotiate

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There are pros and cons to both avenues of financing. Generally, the best way to get a good deal is to know your market rate before you go start to shop. You do this by getting pre-approved through your bank and then moving through the car buying process. If you see a better deal from the dealership, feel free to take it. By knowing your market rate beforehand, you’ll be able to show the dealer what you’re being offered by another lender and see if the dealer can beat that offer. In some cases, you can get a heck of a good deal. 

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