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After you find your dream car, you’ll need to secure financing if you aren’t paying cash. There are many options to choose from, and deciding where to get an auto loan isn’t always an easy choice. Not all types of lenders offer the same experience — benefits and drawbacks included.
Furthermore, you may find that some suit your financial situation better than others.
Before starting your auto loan journey, weigh the best place to get a car loan.
Auto dealership: Dealer-arranged financing and captive financing
The dealer is one of the most straightforward spots to secure vehicle financing. Dealer-arranged financing mainly offers convenience: You can purchase a vehicle and secure financing in a single visit. All you have to do is provide the requested information and documentation and sign the loan paperwork.
The dealer matches you with one of its lending partners and handles the financing behind the scenes for you. Some auto manufacturers, like Ford, GM, Hyundai, Mercedes and Toyota, have their own in-house financing divisions. They are referred to as captive finance companies. Many offer the convenience of applying online for an auto loan before heading to the dealership.
Promotional APR deals are also common with this form of financing.
Dealership auto loan pros
- Convenient. You can leave the car lot with everything handled in one place. It may be easier than dealing with a lender and dealer separately.
- Promotional financing. Dealerships sometimes offer special financing, including 0 APR deals, to make their loan offer more attractive. This can save you money even with higher rates. You may need a high credit score to qualify, though.
Dealership auto loan cons
- Less competitive rates. Dealerships tend to carry higher APRs. They choose the rates and often aim to boost their earnings by increasing the rates offered by the lender.
- Harder to negotiate. If you only seek financing from the dealer, you won’t have as much room for negotiation. Getting a loan preapproval from an outside lender gives you the leverage to push for a lower rate.
Dealership financing is best for drivers who want the convenience of handling financing and purchasing in one trip and are okay with spending a bit more for that feature.
Auto dealership: Buy here, pay here financing
Buy here, pay here financing is also handled in-house, but the dealership itself acts as the lender. You’ll see this most commonly at used car lots that cater to customers with credit challenges — they may advertise that no credit check is required for financing.
While you could get approved for financing with bad credit, this type of auto loan comes at a cost.
Buy here, pay here pros
- Relaxed lending criteria. This form of financing caters to credit-challenged consumers. So, you could get approved even if you’ve had past financial difficulties.
- Convenience. You won’t have to spend time shopping around for a lender to approve you for a loan. Instead, you’ll work directly with the lender to handle the auto loan process from start to finish.
Buy here, pay here cons
- Steep borrowing costs. These loans often come with high APRs and fees for two reasons. First, this allows the lender to offset the risk of default — and second, borrowers at these lots often have no cheaper options.
- Shut-off switches. Some buy here, pay here dealers install tracking devices on vehicles they sell. If the borrower falls behind on loan payments, the vehicle is typically disabled and quickly located by the dealer for repossession.
Buy here, pay here financing is best for consumers who’ve been denied financing elsewhere and should only be used as a last resort.
Banks’ name recognition and history can be comforting to those looking for a familiar experience for their financing. This is especially true for those who have a longstanding relationship with a specific institution. When setting out to find a bank auto loan, pay close attention to requirements, as credit tends to be a bit more stringent.
Bank auto loan pros
- Larger loan amounts. Due to the larger financial backing that these organizations have, many times, you are able to finance more. U.S. Bank, for example, offers loans for up to $100,000.
- Competitive interest rates. Banks tend to offer some of the best interest rates if your credit score is good enough — though credit unions can sometimes beat those rates.
Bank auto loan cons
- Eligibility requirements. Typically, loans from banks carry more strict requirements such as credit score or debt-to-income ratio.
- Best service is reserved for current customers. While current account holders can benefit from rate discounts, those without an existing relationship may not be favored.
A bank-sourced auto loan is best for a borrower who wants to finance a larger loan and has an established relationship with the institution.
Much like a bank auto loan, financing your vehicle through a credit union provides you the reliability of a large institution coupled with personalized service. The non-profit membership structure of the lender also can mean more competitive rates for its members.
As of 2023’s first quarter, credit unions offered an average of 5.38 percent for a 60-month car loan compared to 6.06 percent from a bank-backed option, according to the National Credit Union Administration. Parsons Federal Credit Union, for example, has a minimum APR of 4.99 percent, below the national average.
Credit union auto loan pros
- Customer service. As a member, you will likely benefit from more attentive service along with more flexibility than larger financial institutions.
- User-friendly process. The structure also encourages a more personalized approach to funding, perfect for those with specific needs.
Credit union auto loan cons
- Membership requirement. To benefit from credit union offerings, you must be a member. This can range from a $5 deposit or a separate application.
- Less advanced technology. Unlike larger lenders, many smaller credit unions lack a built-out site with online chat. If you need support, you might have to pick up the phone.
Credit union auto loans are best for borrowers who want a personalized and friendly experience and are open to membership.
If you want to avoid in-person interactions, getting your auto loan online lets you secure financing from the comfort of your home. Additionally, many online lenders, like Auto Approve or Credit Direct, serve as loan marketplaces where you can qualify with multiple lenders and compare their offers side-by-side.
Online auto loan pros
- Bad credit auto loans. With such a wide range of online lenders available, many cater specifically to those with poor credit — a score of 579 or lower.
- Fast funding. The online process tends to mean much faster funding than competitors outside the web. If urgency is top of mind, consider this when comparing lenders.
Online auto loan cons
- Higher rates. The ease of a fully automated experience can also carry the downside of higher rates. The rates you see displayed on the website are not always accurate to what you qualify for.
- No in-person support. While most online lenders offer support over the phone, you won’t benefit from the assistance that in-person interaction can bring.
Online auto loan financing is best for borrowers who are internet savvy and confident in handling vehicle financing without any additional hand-holding.
What’s the best place to get a car loan?
There is no best place to get a car loan for every borrower. Instead, you must consider what type of financial process you prefer.
If, for example, you don’t feel comfortable sharing personal information online, going with an online lender doesn’t make sense. Or if you have worked with a bank and have an established relationship, applying with it may benefit you with competitive rates and personalized service.
Also, think about your credit history and how that influences your potential rates. If your credit is lacking, bank financing is likely not the best place to start, whereas credit unions sometimes cater directly to bad-credit borrowers.
The main takeaway is to approach this choice carefully and compare auto loans to walk away with the best loan for your needs. More than that, don’t be afraid to seek preapproval from multiple lenders. This way, you won’t be pigeonholed with one lender and can choose the best deal.
The bottom line
Getting an auto loan is the less-thrilling first step in a vehicle purchase. To make the process less painful, consider your needs: your budget, finances and how you want the service to be handled. Then, you can decide if a dealership, bank, credit union or online lender will finance your next ride.