Where Should I Finance My New Car?

If you are buying a car and not paying cash, you will need to get an auto loan. Deciding where to take that loan and where to get the best rates is one of the most important decisions in car buying. You can take a loan out with financial institutions, car dealerships, and online lenders. Each of these has pros and cons and the decision as to which one is best for you depends on a few things.

Bank or Credit Union Financing:

Your bank or credit union is a great first stop in the car buying process. Often banks will reward customer loyalty with lower interest rates than their competitors. That is not always the case though. Be sure to check out a few banks to make sure that you are getting the best rates.

The great thing about financing your auto loan with a financial institution is that the pre-approval piece can be done before you even see the first car. The bank or credit union will supply you with a pre-approval letter or letter of intent which you can take with you to the dealership. Having the pre-approval letter in hand can also dissuade the car salesman from trying to talk you into things that are out of your price range or that you don’t need.

Dealership Financing:

The main difference between dealer financing and bank or credit union financing is who is doing the leg work. With bank financing, you are getting rates and conditions from each of the individual banks. With dealer financing, the dealership is collecting the information about loan rates and conditions on your behalf.

Dealerships will have you fill out a credit application and then they will submit that information to multiple lenders to get you the best deal. That extra step does not come without caveats. Sometimes dealerships will negotiate a slightly higher interest rate with you than what the lender promised to pay themselves for finding the loan.

Online Lender Financing:

Online lender financing is definitely the most convenient option for financing as you can do all the comparisons from the comfort of your couch. People with less than stellar credit also typically find that online lenders are more willing to lend them money. Online lenders also offer pre-approval letters which can help keep your car buying on course.

How to Choose:

Bottom Line: A new car is a major investment and money should go where it is treated best.

The most effective way to decide where to finance your car is to get rates from banks, credit unions, dealerships, and online lenders. Hard pulls like those that lenders do will drop your credit score though unless all of the pulls take place in 14 days. Before you head to the dealership, get quotes and preapprovals from a few different banks and online lenders. Once you have decided on your vehicle and the conditions, you can ask the dealer to pull financing information for you too.

Once you have quotes and information from several lenders, it makes deciding the best deal for you easier when you can lay them side-by-side in black and white.