Financing a car can be a tiring process, and in the quest for the best possible deal, customers should always take a look at all their options, which often starts with a single question: should you finance through the dealership (dealer financing) or through a bank, credit union, or other financial institution (direct lending)? In many cases, it's best to choose dealer financing
. Let's look at why:
Direct lending requires a lot more preparation than dealer financing. You'll need to arrive at the dealership with a loan arranged in advance of the purchase, which involves having to determine your credit rating and applying for a loan at an acceptable interest rate.
Financing at the dealership makes the process easier by doing the legwork on your behalf. Consequently, this usually lets you show up, finance the car, and drive away in the same day!
Dealerships have access to more financing institutions and options than regular car customers, which makes it easier to find a loan with a lower interest rate and lower payment. It's also in the dealership's interest to cut you a better deal, because the financial institution will give it a small percentage of the interest charged for the loan.
For example, if you are able to obtain a pre-arranged 60-month loan with a 4% APR through the bank, the dealership might be able to get you the same loan at a 3.75% APR instead while pocketing the remaining 0.25% interest as a reward for bringing in new business to the financial institution. It's a win-win scenario that benefits both the customer and the dealership.