Car Dealership Financing vs. Bank Auto Loans: Information for Getting the Lowest Car Payment

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January 27, 2012

When you’re looking at your favorite vehicles at local car dealerships, financing options are going to be a major part of your purchasing decision unless you have the money to pay for your vehicle up front. For those who have to do financing, looking at a car dealership auto loan versus a third party lender is a critical part of making sure you don’t overpay on your loan agreement.

Auto Dealership Financing: Financing at the Lot

Lots of customers don’t know that they have options when they go to finance a vehicle on a dealer’s lot. As a result, many of them end up letting the dealer do the financing. This isn’t necessarily a bad deal, but there is a standard industry idea called “dealer markup” or “dealer reserve” where the dealer takes a cut of the interest involved in the loan just for helping out with the paperwork. To some customers, this is a bad deal.

Third Party Financing: Pre-Approval and Other Options

When some car shoppers start looking for a new vehicle, they first go to their bank or credit union to see if they can get more favorable financing terms than they could get from their local dealerships. With loan pre-approval, borrowers see what they qualify for from a third-party lender. Then they take that figure to their dealer’s lot. When they have selected the vehicle, they call and finalize the third-party lending agreement, bypassing the dealer entirely for financing.

When you look at these different options, you might find that one or the other suits you a lot better. Always know your credit score and what you generally qualify for in order to avoid getting taken advantage of by a dealer’s representative or anyone else.

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