Is It Better to Get a Car Loan Through a Dealership or a Bank?

For some, owning a car is a convenience; for others, it’s a necessity. But with cars costing tens of thousands of dollars, few of us can afford to pay for one upfront. Almost 65% of Americans turn to some form of financing when they buy a car.

The two most popular financing providers are the car sellers themselves, and banks offering specialized auto loans. These lenders split the market, with financing directly from the seller being slightly more popular.

Let’s dig deeper.

What are the benefits to financing directly through your car dealership?

First, it’s extremely convenient. You can secure your new car and your car loan in a single spot, without having to worry about visiting the bank to apply for a loan. Just fill out the paperwork at the dealership and let them handle everything on your behalf.

Also, some dealership offer fantastic financing deals. This is because dealerships often get a commission based on the number of people that use their financing offer. And automakers who want to incentivize sales often do so by offering competitive financing options.

Some dealerships might do some comparison shopping for you as well, checking multiple lenders to get you the best rate available. This can save you time and effort while helping you to find the best deal out there.

But dealership financing also comes with drawbacks.

Many car salesmen will use dealership financing as part of their sales pitch. This makes it that much easier for them to distract you from the total cost of the car you’re purchasing. Their control over the loan’s terms makes it easier for them to make a confusing sales pitch, even convincing you to buy a car you don’t really want. If you show up ready with financing from a bank, it’s harder for them to manipulate you.

Dealership financing is also often more expensive than financing through a bank. Sure, dealerships offer great deals during promotional sales. But when they aren’t running a promotion, they’ll simply submit your loan application to a partnered bank and then show you the terms that the bank sends them — plus an added commission. If you go directly through that bank, you’ll get a better deal.

Working with a bank brings its own benefits.

First, you already have a relationship with your bank. That makes it easier to secure a low interest rate. It also makes it likelier that your lender will be flexible and understanding if you’re struggling with a given payment.

You’ll also get rates that are lower than the rates charged by dealership financing (excluding the dealership’s special promotional rates).

Getting financing through your bank also gives you the ability to negotiate and comparison shop. You can shop with multiple dealers and not worry about getting a financing offer from each. That gives you more negotiating power.

The main downside of financing through a bank is that you won’t be able to take advantage of the promotions offered by a dealership. It can also be harder to negotiate rates with a bank if you don’t have a prior relationship.

First, work with your bank to get an idea of what terms it can offer you. You should also look into a couple of other lenders, just in case they can offer you a better deal.

Armed with this information, head to your dealership and ask about its loan terms. The best way to find out if your dealership is currently offering any highly-competitive promotional financing opportunities is to ask! But don’t just take their word for it — compare the dealership’s terms with the ones you brought from your bank. If you’d rather finance your purchase at your dealership to keep everything in one place, you can use your bank’s offered terms as a bargaining chip with which to negotiate.

Of course, if you see advertisements for special financing deals from a specific car dealership, investigate them. They can give you an idea of what is available, and can streamline your comparison shopping process. But make sure to read the fine print. If the deal sounds too good to be true, it may come with a catch.

When shopping for a car, it’s important to be prepared. Get ready for your car shopping by finding out what kinds of loan terms are available to you. SuperMoney’s free loan comparison tool is a great way to get dozens of quotes in seconds. Just answer a few easy questions to find out what deals are available. And don’t worry, pre-qualifying for personalized rates won’t affect your credit score.