If you’re seeking financing for a car, there are several options available to you. While the dealership may seem like the most obvious choice because you can handle everything in one spot, you should research all avenues for car financing. Banks and credit unions also typically offer auto loans for new and used cars. Let’s explore your options for financing a car.
Dealer Financing for a Car
Financing your car at the dealership makes sense in a few cases, particularly if you qualify for 0% APR financing or significant rebates through the manufacturer. In those instances, it’s important to be aware of the fine print, which can limit the makes and models that qualify for the dealer incentives. Depending on the incentives and the price of the car, 0% APR financing could end up costing you more so make sure to get all of the information before signing.
Dealer financing may be the easiest option if you are currently upside down on a dealer-financed car from the same maker, but beware of the added costs. Rolling over an old loan into a new one means you’ll always owe more than your new car is worth. In addition, if you have poor credit, you might assume a dealership may be the only resort for financing a car. That “buy here, pay here” type of financing is typically targeted to folks who think they don’t have any other options. No matter what your credit looks like, take the time to learn about your choices for financing a car.
Keep in mind that dealerships and banks may sell your loan to other loan servicers and loan holders. If they do, you may not be interacting with the company you were originally expecting. You’ll most likely be communicating with the loan servicer who manages the loan while the loan holder actually owns your auto loan debt.
Traditional Bank Financing for a Car
Most traditional big banks offer new and used auto loans. Applying for financing prior to your purchase is an excellent way to understand what you qualify for, available term lengths, and how that translates to the amount you should spend on your car purchase. When you get pre-approved first, it can empower you during negotiations at the dealership. You can focus solely on the sale price of the car and avoid the distractions dealerships might try to create when they put the focus on a monthly payment (without taking into consideration the interest rate or purchase price). Having financing for a car in advance of making the purchase means you’ll already have a rough idea of your monthly payment so you can stick to getting the best price on the car you want.
While getting a pre-approval is the smart choice, traditional bank financing for a car can have its drawbacks. To start, big bank rates tend to be higher than what you’d get through a community bank or credit union. And banks in general are not known for their personal service when it comes to helping you understand the car purchase process. They are also less generous about a low interest rate if you are a first-time car buyer. As a result, you could end up approved for less money at a higher rate.
Credit Union Financing for a Car
When you obtain financing for a car from a credit union, you get the benefit of low rates, personalized service, and programs designed for your needs.
Credit unions work with various credit tiers. And you are likely to find a more affordable first-time car-buying option than a traditional bank or what the dealer would charge someone who’s never financed a car. A credit union will always remain the servicer and loan holder, this means your loan will not be sold off or transferred. Finally, a credit union will support you through every step of financing your car: from taking the application to helping you calculate a monthly payment to setting you up with a car-buying service, if you so choose, to make the process seamless and hassle-free. Membership in a credit union can have many other benefits as well, like free financial coaching that could help you save for a down payment or improve your credit for making a car purchase. And because credit unions don’t charge exorbitant rates, you can be assured that you are getting a fair rate on your new set of wheels.