Auto Loan Financing Options: Dealership vs. Bank Financing

Buying a new car is a process that involves a lot of decision-making. While you're grappling with what make and model is the best fit for you, if you want to buy new or used, or what features you need to sign on the dotted line, you may be overlooking one key factor: how will you finance your new car?

Key Takeaways

Understand the key differences between financing through a dealership and a bank.
Explore the benefits of having a pre-existing relationship with a bank for financing.
Learn how dealership perks might come with hidden costs.
Discover which financing option aligns best with your financial situation and purchasing goals.

Auto Loan Financing Options
Comparing Dealership vs. Bank Financing
How to Make an Informed Financing Decision

Auto Loan Financing Options

Many consumers see financing their new vehicle as an afterthought, researching and finding the car they want before considering how they'll pay.

As a result, these buyers will often accept dealer financing without exploring their options so that they can drive off the lot that day. While dealership financing can come with some attractive perks like 0% interest for a set period or cash-back offers, you may not be getting the best bang for your buck if you don't take the time to analyze all of your financing options.

Comparing Auto Loan Financing: Dealership vs. Bank

When choosing how to finance your new vehicle, it's crucial to compare dealership and bank financing options. Each has unique benefits and potential drawbacks depending on your financial situation and needs. Here are some of the pros and cons of both dealership and bank financing:

Dealership Financing

Pros	Cons
Available onsite at dealerships; can drive your new car off the lot same-day	Interest rates may be higher than banks and credit unions, especially for those with less-than-perfect credit
Attractive offers, such as 0% interest periods or cash-back	Offers are often valid for brand-new cars only and require buyers to meet a certain credit threshold
Work with a wide range of lenders country-wide	May find yourself dealing with a non-local lender who is more challenging to reach and less accommodating of late or missed payments
Higher approval odds for those struggling to secure financing	Those with less-than-perfect credit may face significantly higher interest rates and payments

Bank Financing

Pros	Cons
Can shop around at multiple financial institutions to find the best rate	Can be time-consuming to find the best option
You have an existing relationship and can expect transparency	Offers may be available but are often less appealing than those offered at dealerships
Will work with you to determine what payment you can comfortably afford	Lower approval odds for those with less-than-perfect credit
Can typically lock in your APR for a set time after pre-approval	Must secure financing before making your purchase at the dealership

How to Make an Informed Financing Decision

As you're weighing the pros and cons of your financing options, consider factors such as:

How much you can afford for a down payment and a manageable monthly payment
The interest rate and loan term (See FSB's Auto Loan Rates)
The potential impact on your credit score
The total cost of the loan over time

If you are still determining what you can afford, consider stopping in to speak with your banker about what options may be available to you. Even if you aren't ready to complete an application, your bank can provide insight as you begin the process, allowing you to make an informed decision through prequalification.

Impact On Your Credit Score

Remember that submitting an actual loan application will often result in a hard inquiry on your credit report. However, if you're shopping around and manage to keep the hard inquiries within a short timeframe, these inquiries can often be combined into one, lessening the hit to your credit. Be sure you're ready to begin the process before submitting any loan applications.