Bank vs. Dealership What’s the Best Way to Finance a Car

Many of us need to arrange finance in order to be able to buy the car we want. There are all sorts of deals and incentives around when you visit a dealer like Northside Auto, and it can be fast and convenient to let them do all the work and arrange the finance you need to buy their car.

When you are buying a car and don’t have all the cash required to purchase it outright you will need to assess how you are going to come up with the money you require. That normally means financing the deal through either the dealership or via a bank loan.

Which one is best?

There is no definitive answer as to which option is the best. That’s because there are a few key factors that can influence which form of financing is the most suitable for your specific circumstances.

Let’s look at some key considerations and some tips to help you find the best finance deal for your car purchase.

Covering all the bases

The excitement of finding a car that you love and want to buy could potentially cloud your judgment when it comes to signing up for the right finance deal.

A good strategy would be to shop around for competitive finance quotes from your bank and other reputable lenders. Don’t apply for a loan at this point as it could harm your credit score if you make too many applications for credit in a short space of time. However, the benefits of shopping around mean that you have a good idea of what rate of interest you can get before you head to the dealer and see what they have to offer.

Another advantage to getting some quotes before you go to the car dealership is that it gives the dealer a heads-up that you are a savvy buyer. It also means they will have to try and offer the most competitive deal possible to win your business as part of the car-buying process.

On the other hand, it can be very time-consuming and arduous to trawl through lots of different sites in order to find the best finance deal. You also might find that there is not a lot of difference between the quotes if you have a good credit score and will likely be offered a good rate wherever you go.

What you need to know about financing your car with a bank loan

If you find a suitable finance offer from a bank and get preapproved for a loan, that can be an advantage when you head to the dealership. 

Having a finance deal agreed in principle means that you will be considered a serious buyer when you start negotiating to buy a car. It also means that you can focus on the purchase price without worrying about financing the deal at the dealership.

What are the pros and cons?

Car dealerships tend to have a limited number of lenders they work with. Shopping around for a bank loan gives you more scope to find a rate that might not be available through the dealer. Some dealers might even add a small markup to their finance quote as compensation for arranging finance through them.

Having a bank loan arranged means you are more focused on purchasing the car and it could help you avoid additional costs and add-ons offered by the salesperson that you may not need.

Another potential advantage to consider with getting a bank loan beforehand is that it will save time at the dealership. If you know the model you want you can turn up there with the finance arranged and complete all the paperwork quicker.

Some obvious downsides to consider about bank financing is you might not get the best rate. It is perfectly feasible that your dealership might even have a 0% interest rate deal incentive going on. You obviously won’t be able to beat that rate.

How does dealer financing work?

In basic terms, dealer-arranged financing follows a very similar process to arranging a bank loan yourself. The fundamental difference between the two is that the dealer is doing all the legwork on your behalf and shopping around for the best rates.

All you have to do is choose your vehicle and then fill out one single loan application form. The dealership can then use these application details to submit to several lenders and come back with the most competitive offer of finance they can find.

Applying for car finance through your dealer is quick and convenient. It is also worth saying that some lenders only work with certain dealership networks. That means you could experience a scenario where you might not find it that easy to match your bank loan offer with the car dealer selling the car you want.

Overall, you would have to conclude that financing your car purchase through the dealership where you are buying the vehicle is likely to be quicker and more convenient. It is also just as likely that you will get the best finance deal, as they will want to be competitive to get you to sign a deal and buy the car.

Get ready for car finance

Regardless of which financing option you choose you still have to ensure that your credit history and finances are in order before you apply.

It is always a good idea to check your credit score before making any application for finance. You can see what lenders will be seeing about your payment history and ability to meet the payments. If you’re considered a good risk, you stand the best chance of getting the best finance rates possible.

You can still get car finance if you have poor credit. However, it will cost you a higher interest rate as you are considered to be a higher risk by lenders.

As you can see, there are pros and cons attached to either financing option. If you want speed and convenience in the application process, you will likely be driving your car away quicker when you apply for finance through the dealership.

Either way, once you have a great car that you want to own, you should be able to turn that dream into a reality with the help of car finance.