Auto Loans: Bank versus dealership financing
Buying a new car can be a very exciting but like most major purchases, it can turn out to be equally stressful and emotionally demanding. If you’re currently in the market searching for a new car, you’ve most likely spent several hours researching the different manufacturers, models, years, features, and colours. Other things such as safety ratings and best gas mileage would probably have been put into consideration as well.
However, another important thing to consider on the journey to buying an automobile is how to finance it. While paying in cash up front is typically the best way, since you don’t have to worry about interest rates, not everyone can afford this approach. Therefore, financing it becomes the best available option. You can choose to either go through your bank or the dealership itself to get car loans. While these options would ensure you still drive off with a new vehicle, they both differ in terms of experience, loan lengths and interest rates. It is important to consider the potential pros and cons of both financing options before going ahead to apply.
Typically, auto loans are secured loans because the debt is guaranteed by the asset—which is the car. Therefore, if you fail to meet up to the agreed repayment schedule, the lender—whether it’s the bank or the dealership—can decide to repossess the vehicle. Irrespective of the financing option, the lender would always want to ensure that you can afford to meet up with the regular payments on the car loan. The lender would always perform a credit check during the auto loan preapproval stage and the purchaser would equally need to show proof of their income and permanent home address.
Once you have provided this information, you will be offered different options for interest rates and term. Typically, auto loan payments are fixed and are done regularly on either a weekly, bi-weekly, or monthly basis. It is necessary to read the conditions of an auto loan, when choosing which one is best suited to your financial capabilities.
There are open and closed car loans; where open loans allow the borrower to make additional payments on top of the agreed repayment sum, while closed loans mean you’ll have to stick to the repayment plan until the end of the term. Often times, closed loans would charge you a penalty for making any additional payments. Using tools such as CarPaymentCalculator.net can be useful in helping you calculate your monthly auto loan payments.
Car dealerships have quite a number of perks that can make financing your purchase quite easy. They are looking to sell as many cars as possible and would always be willing to help most buyers to fund their purchase. One of the major benefits of financing your car purchase through a dealership is convenience. Dealerships have an in-house financing office that saves you the time and stress of looking around for other lenders. They also offer additional deals and rebates from manufacturers, which is useful in lower the overall cost of the vehicle.
With a dealer financing, buyers won’t have to go through the often lengthy process of a bank approval that can take days, or even weeks before approval. Instead, you can simply walk into a dealership and sort everything out including your financing options and drive out with your new vehicle.
Nonetheless, one primary benefit for opting for bank financing is that you’ll get much better interest rates. Most dealers tend to have higher interest rates than banks or credit unions and this can be disadvantageous for some buyers, especially if you intend to purchase an expensive luxury vehicle.
To know which financing option is best for you, you would need to consider what your priorities are. Financing your car straight from the dealership is the right option if you’re not willing to shop around for various car financing options. It is also easier to qualify for this if you perhaps have a poor credit history. However, if you need a much larger sum of money, then borrowing from the bank would be your best option. Bank offer a lower interest rate and a repayment term of about five years of less.
Both the bank and the dealership are some of the different ways to finance a new vehicle. It is important to compare various options and select the one that’s most affordable. Always take a thorough look at the terms and conditions to ensure that you’re choosing the one with the best interest rate and repayment term.