Is It Better to Finance Through a Dealership or Bank?

Finance Through Dealership or Bank

If you are buying a new or old car and getting a loan with full details, you have the better option of financing the purchase through a dealership or bank both.

The right choice between the two depends on a few different factors, and no option is inherently better than the other.

Depending on your situation, choosing one over the other can save you both time and money.

Read on to know more about each option and how to choose the right one.

Deciding whether to finance a car through a dealership or a bank depends on various factors, such as your credit score, the interest rates offered by the lender, and your preferences.

Here are some considerations to help you decide:

Dealership Financing:


  • Convenience: Dealerships offer one-stop shopping. You can select a car, negotiate the price, and arrange financing in one place.
  • Special promotions: Dealerships may offer special promotions or incentives such as lower interest rates, rebates, or cashback offers that can make financing more attractive.
  • Flexibility: Dealerships may be more flexible in their lending terms, especially if you have a lower credit score.


  • Higher interest rates: Dealership financing often comes with higher interest rates than bank loans.
  • Limited options: Dealerships work with a limited number of lenders, so you may not have access to the best rates and terms available.

Bank Financing:


  • Lower interest rates: Banks typically offer lower interest rates than dealerships, which can save you money over the life of the loan.
  • More options: Banks have a wider range of loan options, so you can compare rates and terms and choose the loan that best fits your needs.
  • Pre-approval: You can get pre-approved for a loan from a bank, which can give you a better negotiating position with the dealership.


  • Inconvenience: Applying for a bank loan may require additional paperwork and visits to the bank.
  • Stricter requirements: Banks typically have a stricter credit score and income requirements, which may limit your options if you have a lower credit score.

In summary, if you have good credit and prefer a lower interest rate, you may want to consider bank financing. However, if convenience and flexibility are important to you, dealership financing may be a better option. It’s always a good idea to shop around and compare rates and terms from multiple lenders before making a decision.

Is It Better to Finance Through Dealership or Bank

How to Choose the Best Financing Option

In any case, it is best to choose the option that will save you the most money. Unfortunately, it’s not always easy to know what that option is beforehand.

As a result, it may be worth trying to get pre-approved by a bank or credit union before going to the dealership and then asking the dealer to get a quote. That way you can compare and determine which option is the best.

It may take some time for you to collect quotes from individual banks and credit unions.

If you have bad credit, it can be especially important to look for options through banks and credit unions.

Even if the interest rate is higher than you desire, it may still be a better setup than what you would get with a buy here pay dealership here.

Whatever option you choose, it is important to know that applying for an auto loan can affect your credit score.

Every time you apply for a loan, the lender places a hard inquiry on your credit report, which can take a few points off your score.

Applying for multiple loans over a short period of time can compound that negative impact, but if you do all of your rate shopping over a shorter period usually 14 days, but sometimes longer that’s all when calculating your credit score. Inquiries are combined into one.

Different Between Rates of Finance Through Dealership or Bank

When you apply directly through the bank, you get the interest they decide to pay. This means there is virtually no competition or pressure on the lending institution to offer you any kind of reward or low rate and various other benefits of any kind.

This situation is not the case when you choose an auto dealer for financing. This is due to the fact that the auto dealer puts you in a position where lending institutions and banks struggle to offer you the best rate, so you would definitely choose to accept their deal.

As a result, the loan providers listed below will definitely offer their best rates at the same time.

Financing Through Dealer

Dealer of finance arranged financing works the same way as bank financing, and because of this not much different from in-dealership financing or bank financing. The only difference is that the dealer is acting on your behalf.

After selecting your vehicle, the dealer will have you fill out a credit application, which they will submit to a number of lenders. It allows you to compare rates and terms to choose the best option for you.

In some cases, however, a dealer may negotiate a higher interest rate with you than the lender is offering and take the difference as compensation for handling the financing.

In other words, you may not be getting all the information you need to make the best decision.

In general, you can usually get a lower interest rate on a new car through a dealer than on an older car.

In fact, some dealers may offer promotional financing on brand-new models, including rates as low as 0% APR for those who qualify.

Another form of dealer financing is when the dealership provides in-house financing. These buy here, pay here dealerships specialize in dealing with people with bad or no credit.

But the cost of finance and down payment requirements on these financial loans are high which is not suitable for a pocket for everyone, and there is also a higher chance of repossession. That’s better.

Financing Through a Bank

Bank financing is better, Bank finance involves going directly to a bank or credit union to get a car loan. In general, you will be pre-approved for the loan before you even step into the dealership.

The lender will give you a quote and a commitment letter that you can take to the dealer, saving you some time when finalizing the contract.

Depending on the bank or credit union, you can apply for pre-approval online or at a local branch.

You may need to provide information about the vehicle, which can cause some delay if you are not yet sure what you want.

The rate offered by the credit union or bank will be the actual interest rate, this is very important and does not include any markup, which can happen if you work with a dealer.

In general, however, the rate quote you receive is not the final offer. When you visit a dealership to buy a car, the lender will conduct a hard credit check and review your complete credit report before approving your application and determining your loan rates.

One thing to note is that your options may vary depending on whether you are buying a new or a used car.

Some credit unions and banks have limits on mileage and vehicle age, and newer vehicles may generally qualify for better benefits and lower interest rates.

Final Words

For each of your financing options, Before choosing dealership or bank options, make sure you understand all the terms and conditions.

Before choosing a bank or dealership finance option confirm that the costs fit within your budget, each month and for the long term.

Determine the total amount you will pay for the car during the life of the loan. Then, see if the trade-offs are worth it.

You might not mind making a higher overall payment with a longer-term loan in exchange for a lower monthly payment.

Or maybe you are all about the important bottom lines, in which case a discount or the best deal and a lower interest rate may be the deciding factor. It is important.

Once you have weighed the possibilities, you will be ready to make a well-informed choice about whether it is better to finance through a dealer or a bank.

You can finalize your purchase of a new or used car, with the confidence that you have found the right deal for you.

Basically, the convenience of doing everything under one roof is a major difference here.

When you finance a new or old car at a car dealership from finance, you are essentially allowing the car dealership with better details to be your intermediary to find the best offers.

The auto dealer’s finance group will most likely do all the legwork on your behalf. The dealer often uses the same banks you currently know or can bank with.

However, dealerships also have access to specific lending institutions that you may not be aware of. Is this a big deal for a car buyer like you?

If access to multiple lenders indicates that if you do not get approval from a financial institution, it is imperative that your auto dealerships can work with other banks to get you approved without having to fill out another form for the whole process. Is. This, undoubtedly, saves you valuable time.

When you go to apply for finance directly to a bank, There are high chances that you are at their mercy to get the best rate they offer.

This leaves competition or little incentive for that bank to offer you the best deal with a lower rate or another benefit.

This is why financing at the auto dealer puts the power. Dealership financial services are better than bank financing. You can back in your hands as lenders and banks fight to get your loan.

But the charges of the bank interest rate may be lower than dealership financing. They offer their best rates in the process.