If you want to get car deals and loans, you can choose to buy it through bank or dealer financing. The right choice between the two depends on some different factors, and no one is better in essence than the other.
Depending on your situation, choosing one can save you time and money.
Bank financing
Bank financing includes obtaining automobile loans directly from banks or credit cooperatives. Generally speaking, you will get a pre approved loan before you enter the dealer. The lender will give you a quotation and a letter of commitment. You can give it to the dealer, which can save you time in finalizing the contract. Having a specific approved loan amount on paper can also prevent car salesmen from trying to convince you to include additional fees you don’t need.
Depending on the bank or credit union, you can apply for pre approval online or at your local branch. You may need to provide information about the vehicle, which may lead to some delays if you are not sure what you want.
The interest rate offered by the bank or credit union will be the real interest rate, excluding any price increase, which may occur when you cooperate with the dealer. However, generally speaking, the quotation you get is not the final one. When you go to a dealer to buy a car, the lender will run a hard credit check and review your complete credit report, then approve your application and determine your loan interest rate.
One thing to remember is that your choice may vary depending on whether you buy a new car or a used car. Some banks and credit unions have restrictions on the age and mileage of cars, and new cars may generally be eligible for lower interest rates.
Dealer financing
Dealers arrange financing and bank financing in the same way. The only difference is that dealers Finance on your behalf.
After you choose your car, the dealer will ask you to fill out a credit application, which they will submit to multiple lenders. This allows you to compare rates and terms and choose the best option for you.
However, in some cases, the dealer may negotiate with you a higher interest rate than that offered by the lender and use the difference as compensation for processing the financing. In other words, you may not have all the information you need to make the best decision.
Generally speaking, the interest rate for a new car you buy from a dealer is usually lower than that for a used car. In fact, some dealers may offer promotion financing for brand new models, including a discount of as low as 0% per annum for qualified models.
When another form of dealer financing occurs, dealers provide internal financing. These dealers who buy here and pay here cooperate with people with bad reputation or no reputation. But the cost of these loans and down payment requirements are very high, and the possibility of recovering loans is also higher.
How to choose the best car deals and loans
In any case, it’s best to choose the most cost-effective method. Unfortunately, it’s not always easy to know in advance what choosing car deals and loans is.
Therefore, before you go to the dealer, you’d better try to get the prior approval of the bank or credit union, and then ask the dealer to provide a quotation. So you can compare and decide which option is the best.
It may take some time to collect quotations from individual banks and credit cooperatives.
If you have bad credit, it may be particularly important to find options through banks and credit cooperatives. Even if the interest rate is higher than what you might want, it can still be a better setting for what you’ll get, buy here, pay the dealer here.
No matter which option you choose, it’s important to know that applying for a car loan will affect your credit score. Every time you apply for a loan, the lender will strictly check your credit report, which can reduce your score by several percentage points.
Applying for multiple loans in a short period of time can aggravate this negative effect, but if you complete all the interest rate queries in a short period of time (usually 14 days, sometimes longer), all the queries will be merged when calculating your credit score.
