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4 min read. Published August 18, 2022

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When it’s time to purchase your next vehicle you need to first determine if you’ll go directly through your bank or through the bank itself to get vehicle financing. Although both give you the opportunity to drive away with a new car, they differ in the experience, rates offered in addition to loan lengths. How to decide between bank or dealer auto loans Consider the potential benefits and downsides of both options prior to submitting an application for financing. Bank financing The major advantage of applying straight to the bank or is that you’ll have low interest rate. Dealers tend to have higher interest rates since dealers will add a markup to the interest rate each time they connect you with an lender. Additionally banks and credit unions provide an array of options and services, which means you’re more likely to locate a financing option that works for you. Dealer financing When you go through the , you can take advantage of several perks that will make the process of financing easier. You will be able to make use of the financing office at the dealership which reduces the amount of time you be able to shop around with other lenders. Dealerships also often offer manufacturer deals, including rebates as well as other . A bank can finance your auto Financing through a bank can be an excellent option for those looking to stay clear of shopping around and making comparisons of rates. Benefits of bank auto financing When done correctly, financing a car through the bank is an excellent option. Banks are more likely to offer low interest rates on an and can be a good option if you need more of a loan. There are some disadvantages to auto financing from banks. However, other bank loans are more time-consuming to process, and you may need to submit your application in person. Also, you may not be eligible for a loan when you have an unsatisfactory credit score. Be aware of the urgency of your car loan as well as the condition of your credit before deciding to borrow from a bank or credit union. How to finance through a bank If financing through a bank is the right option for you, you first must meet the eligibility requirements set by your bank to qualify for a loan. Most banks offer an auto loan minimum and maximum amount, so check if your chosen bank can provide you with the auto loan that meets your requirements. It is essential that at this point you are aware of the car you want to finance. Certain banks only lend to cars purchased through partner dealerships and may be able to impose mileage and age limitations. Try to find a lender that offers fee-free refinancing. This way, if your financial situation improves or deteriorates over time, you are able to modify your loan without incurring additional costs. You will also need to request a quote from the bank. In the process of obtaining a quote you will be able to decide which term is best suited to your monthly budget and determine the total cost, including interest. When you do decide to move ahead with the application process and the lender will likely require documentation including W2s, recent pay stubs as well as proof of address and an ID issued by the government. Do you think bank auto financing is right for you? Borrowing money from a bank could be an alternative if you require more loan quantity, lower interest rate, or a repayment term that lasts at least five years. Consider the drawbacks and advantages of bank financing prior to signing off and be certain to research your alternatives. Auto financing through a dealership A dealership may be an option for you if your credit isn’t in good shape and you don’t have a current connection with any banks and credit unions. Benefits of financing with a dealership primary benefit of using a dealership to finance your car is the convenience. You don’t need to make an application for financing with an institution and then wait for days, or weeks for approval. Instead, you’ll be able to go to the dealership and drive home behind the car of your . Plus, if you have someone with you, you could have that person come with you to make the purchase experience a bit less stressful. Drawbacks of financing through dealerships The first drawback may initially seem like a benefit. Dealerships typically offer financing terms that include a minimum of $0 down payment options. While these could result in a favorable monthly payment and the initial cost, you’ll pay more in interest in total. You are also likely to pay a higher interest rate. The cost of dealer financing can be higher than standard auto loans — even when you have the same credit score. Dealers both apply a markup to the interest rate offered and are also enticed to direct you to specific lenders even if you could find an APR lower elsewhere. What is the best way to finance a dealership Dealerships work with large banks as well as online lenders and credit unions to provide automobile loans by way of their finance division. This means that you’ll be capable of financing your car through a plan which the dealer has in place with a lender, and the dealer will handle the bulk of the work. If you’re approved for financing through the dealership, you’ll be taken to the dealership’s financing department to conclude the transaction. This process can differ based on the dealership, but it is likely that you need to fill in a couple of forms and then submit proof that you have income or assets. If you’re approved, the dealership’s finance manager or a representative from the dealership’s auto lender will be able to help you review the loan specifics and approve the loan. Is dealership financing right for you? Financing your vehicle directly through the dealership is the ideal alternative if you’re looking to stay clear of the heavy lifting that comes with shopping for car financing. It’s also easier to qualify for, so if you have poor credit and are unable to get financing from the dealer, it may be more accessible. Some tips for getting an auto loan No matter if you’re applying for your auto loan directly from the dealership or via a bank or credit union it is essential to get prequalified and research. Be prequalified if you are seeking financing through the credit union or a bank you should take advantage of the procedure. The process is usually offered on the internet and is a fantastic way to get an idea of the amount you’ll be able to borrow. It is necessary to have your income or savings as well as other personal details to finish the procedure. If you are prequalified, shop around for the loan that is at the same rate as the one you were offered. A lot of auto loan rates are negotiated, and the same can be said of fees and length that you take out the loan. There are many lenders competing to get your business and you should use this to your advantage. Don’t settle for the lender that does not offer favorable terms. The next steps are to look at both dealerships and banks could be options when it comes to financing your new car. But they each have their advantages and disadvantages Be sure to research for the best rates and terms for repayment. Find out more

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Written by

The article was created with the help of automation technology, and then edited and fact-checked by an editor on our editorial staff.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down complicated topics into manageable bites.

Auto loans editor

Reviewed by Mark Kantrowtiz Reviewed by Nationally acknowledged scholar financial aid specialist

Mark Kantrowitz is an expert on student financial aid, the FAFSA as well as scholarships, 529 plans as well as tax benefits for education and student loans.

Nationally recognized student financial aid expert

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