Best Way To Finance A Car: Bank Or Dealership?

Getting a car financed is no big deal if you meet the requirements. From banks to auto dealerships, there’s a lot of options to choose from. However, the right selection depends on quite a few factors.

Ultimately, you can only choose the better financing option when you’re aware of the benefits and drawbacks. Keep reading to comprehend which option suits your needs best.

Bank Financing For Your Vehicle

Financing your car through a bank means you’ll have to visit a credit union or a bank directly. In most cases, you can get pre-approved for a certain sum prior to selecting a vehicle. You’ll receive the letter of intent and a quote from the bank which you can take to the dealership, thus saving yourself time and effort. 

• You can get pre-approved online or by visiting the branch. In either case, you’ll already have an idea of what you can borrow. This will help you plan your budget better. It’ll also give you an upper hand when it comes to negotiating better prices and discounts at the dealership. 
• Note that the bank will review your credit score before approval. This will be counted as a hard inquiry and lower your credit score by a few points.
• The offer that you’ll receive from the bank or the credit union won’t include any markup costs. It’ll reflect the absolute rate of interest.
• The offers may vary depending on the vehicle’s age, mileage, and other factors. In general, you’ll get a comparatively lower rate when you choose bank financing for a new car.

Car Dealership Financing

With dealership financing, you’ll ultimately be routed to one or many lenders. Most dealers work as brokers         and have personalized application forms. Once you fill out the application, the dealerships will send your application to a pool of lenders. Next, these lenders will pull your credit report, then send back their offers to the dealership. 

• It’s a lengthy process and you won’t have much control over which entity will ultimately provide the loan. In most cases, the dealer will add a mark-up on the original rate offered by the lenders. They do this to compensate for handling your financing needs.
• The chances of receiving a 0% APR deal and other promotional offers on new vehicles are higher when you finance through a dealer.
• You’ll have to bear the additional fees and charges when you finance the vehicle through a dealership. Moreover, there’s little to no room for negotiation.
• Most importantly, dealerships will persuade you to choose add-ons for your vehicle. If you agree, the overall financing will just increase, thus increasing your total debt.

How To Decide?

Make sure you understand all terms and conditions for each of your funding choices and ensure that the costs fit into the budget - both monthly and over the life of your loan. Still, it’s quite difficult to understand which is the better choice at first glance.

Here are some points to consider: 

• Compare quotes from multiple lenders to understand the rates and charges involved. Then, see which option is more cost-effective. Generally, it’s a good idea to get a pre-approval as it’ll help you manage your budget better.
• You can get good rates and 0% APR through dealerships only when you have a great credit score. If your score isn’t that strong, it’s a good idea to apply for financing from credit unions and banks. 
• Regardless of the option you end up selecting, keep in mind that lenders and banks will pull your credit score. This will be recorded as a hard inquiry and your score will fall by a few points. Do your research beforehand and get quotes within a short period, ideally 14 days, as all inquiries within this period will be deemed as one inquiry.
• Check your budget and try negotiating discounts and offers on the sale price of the car. If you already have a pre-approval, chances are that the dealership will agree to offer you better prices as well as promotional offers.

 Conclusion

It’s important to take your time to research and compare multiple quotes and offers from banks, credit unions, and dealerships. Furthermore, it’s equally important to set a budget to ensure that you don’t go overboard with your purchase.

Check your credit score and online loan calculators to get a clearer estimate of what you might pay monthly over the loan term. Furthermore, make sure that you have enough to fund a robust down payment so you can save on the interest over the life of the loan.