What is the best way to finance a new car? Dealership vs. bank financing
Hello Loyal Beaverton Readers!
Over the last couple of weeks, we have had a number of inquiries about the best way to finance a new or pre-owned vehicle. As a professional broker, I have had a great amount of experience in this area and no matter what the internet says, I believe it is always to the customer’s benefit to have the dealership arrange the financing for the client. Plus, in many cases, the manufacturer is offering an incentivized interest rate.
So, in the event the client went to their bank or credit union, they would think they are getting great financing because they also bank there. Not true! In fact, this can lead to a mistake which could cost the customer thousands of dollars over the course of the loan.
Here are some facts about the way this really works in the world of car loans.
Financing Through the Dealer
Dealer-arranged financing works the same way as bank financing—the only difference is that the dealer is doing the work on your behalf.
After you choose your vehicle, the dealer will have you fill out a credit application, which they’ll submit to multiple lenders. This allows you to compare rates and terms to choose the best option for you.
In some cases, however, a dealer may negotiate a higher interest rate with you than what the lender offers and take the difference as compensation for handling the financing. In other words, you might not be getting all the information you need to make the best decision.
In general, you can usually get lower interest rates on a new car through a dealer than on a used car. In fact, some dealers may offer promotional financing on brand-new models, including rates as low as 0% APR to those who qualify.
Financing Through a Bank
Bank financing involves going directly to a bank or credit union to get a car loan. In general, you’ll get preapproved for a loan before you ever set foot in the dealership. The lender will give you a quote and a letter of commitment that you can take to the dealer, saving yourself some time when finalizing the contract. Having a specific approved loan amount on paper could also keep the car salesperson from trying to persuade you to include add-ons that you don’t need.
Depending on the bank or credit union, you can apply for preapproval online or at a local branch. You may need to provide information about the vehicle, which could cause some delays if you’re not yet sure what you want.
The rate offer from a bank or credit union will be the true interest rate and doesn’t include any markup, which can happen when you work with a dealer. In general, though, the rate quote you get isn’t a final offer. When you head to the dealership to purchase the car, the lender will run a hard credit check and review your full credit report before approving your application and determining your loan rates.
One thing to keep in mind is that your options may vary depending on whether you’re buying a new or used car. Some banks and credit unions have limits on the vehicle’s age and mileage, and new vehicles may qualify for lower interest rates in general.
In essence, a car deal could take several hours from when you step onto the dealership lot unless you have help. A professional broker, for example, understands not only the financing process (having gone through the process hundreds of times), but he also knows the dealerships and the tricks of the trade.
So, if you want things to be streamlined, it would certainly wouldn’t hurt to have a broker who is not only on your side, but whose job it is to make your life easy and save you money. Of course, as a broker myself, my goal is to get you in and out of a dealership in under an hour, keys in hand.
I hope you find this useful. Thanks for reading!
If anyone needs help with purchasing or lease a new vehicle, we can help! If you want to purchase a pre-owned vehicle we can help with that too! If you want to sell a vehicle that is no longer in use, we can help with that too.