Is It Better To Finance A Car Through A Bank Or Dealership?

Rohan Mathew


Choosing between financing through the bank or a dealership may seem like an easy decision, but there are many factors to consider before making your choice. The first thing you will want to think about is whether you qualify for a car loan with the bank or if you need to put up collateral such as your home. Another important consideration is what type of interest rates offered by both options. Then, it might be worth considering who offers better terms on their auto loans, such as lower down payments or longer repayments periods. This enables you to see which one gives you more flexibility in case life throws some curveballs at you.

If you’re in the market for a new car, chances are you’ll be faced with two decisions: whether to finance it through a bank or dealership and the type of financing option to consider. Hopefully, this post will help you make these decisions easier by giving some insight into each type of financing.

What is the difference between a bank and a dealership?

The main difference between financing through a bank or dealership is the interest rates that each offers. Banks usually offer lower interest rates than dealerships because they are riskier for lenders to finance, and they can maintain a higher return on capital.

Dealerships are where you purchase your new or used vehicle, and they may also include some financing options for buyers. Dealerships usually offer higher interest rates than banks because of the risks of lending money to customers who can’t qualify for credit.

Dealers have much higher overhead costs since car prices fluctuate so often, and they have to pay for other things like advertisements, new car warranties, liability insurance premiums, etc.

A bank typically offers loans from different lenders. Therefore, rates can vary based on factors such as your credit score. On the other hand, some dealerships tend to offer financing through their subsidiaries.

So, is it better to finance a car through the dealership or a bank? Let us learn more about the pros and cons of each type of vehicle financing plan.

Advantages of financing through a bank

Banks offer better and lower interest rates, and they work with a variety of lenders to find the right one for you. Since banks don’t sell cars, they will not be trying to recoup their investment by selling the vehicle.

Also, banks offer better rates than dealerships. They can make loans based on your credit score alone.

Another advantage is that banks offer various payment plan options, and they will work with you to find one that is right for your budget. They also offer loans for customers who have a spotty credit history, so this may be an option worth exploring if you’re looking for more affordable financing.

Disadvantages of financing through a bank

You may not find the car you want in your budget because they only work with lenders who offer loans within a certain range.

Suppose it’s important to you to own the car outright when making payments on the loan; a bank may not be the best option. They may require you to pay out the entire cost of the car upfront. This means that if something goes wrong with your vehicle, then it will be difficult or impossible for you to get rid of it because you’ll still owe money on it. The bank’s loan process can also be more complicated to qualify for.

What are the advantages of financing through a dealership?

Dealerships have a faster turnaround time and more flexible payment options for financing. This is an advantage for people who are looking for a loan outside their bank’s set criteria.

Most dealerships are locally owned and operated and can give you personalized attention to your needs. Dealerships have higher rates, but they often provide better customer service. 

Dealerships also have the option of extending longer loan periods, which can be useful if you are buying a car with cash and don’t want it tied up in debt for too long.

Dealerships offer more flexible terms when financing, including shorter repayment schedules or lease options.

Disadvantages of financing through a dealership

One of the disadvantages is that vehicle financing through a dealership generally has stricter terms and conditions.

Dealership loans are subject to the approval process at their respective financial institutions. The approval process can take longer, and you may be limited to the types of loans that a particular dealership offers.

Dealerships have shorter repayment schedules or lease options, which can be more expensive in the long run.

Dealerships also offer less flexibility with interest rates and credit scores. If you’re looking for an affordable option and have a poor credit history, then financing will likely be more expensive with the dealership.