Shopping for a new vehicle is an exciting time. You've been in your current car for some time now. It's been a good run but it's time to upgrade. You've looked over the different vehicle options out there, you've considered what manufacturers are currently offering, and now you have it down to the exact truck, car, SUV, or minivan you want.
Now, all that's left is going to the dealership, agreeing to terms, and signing on the dotted line. But what are the terms offered by the dealership, and is it better than what your bank is able to give you? Well, that depends. It might be or it might not be. To help determine this you'll need to go over a few specifics. Don't worry, we are here to walk you through the process, and if you ever need additional, specific help, make sure to contact your bank to find out more.
What The Bank Can Offer
Before you even talk to your bank you can check out their current car loan interest rates. These will be listed on their website and you can always call and ask about their current rates. The rates are subject to change on a daily basis, so you'll want to contact your bank soon before you plan on purchasing your vehicle.
Now, this will not necessarily be the interest rate you're locked into. This is the best possible rate. If you meet all of the bank's qualifications you'll land this interest. However, if your credit score does not meet the desired threshold you will be given a lower rate. If you know you need to purchase a vehicle in the coming months (or sometime within the next year) now is a perfect time to begin working on your credit score. Even a boost of 50 points can make a world of difference with your interest rate.
What The Dealership Can Offer
What the dealership can offer will depend on what kind of dealership you go to. Dealerships that sell new vehicles are licensed directly though the manufacturer. This also allows them to work through their own financial department. A third party dealership, such as a used car lot, will go through an outside bank, which means they will not have as much leeway with what they can and cannot charge you.
The benefit of going with a new car lot (even if you purchase a certified pre-owned vehicle from them) is because the dealership uses its own financial department you may be able to land more favorable rates. This will 100% depend on your credit report and your debit to income ratio (how much debt you have to how much money you bring in). But if you meet the requirements of the dealership you can qualify for some beneficial interest rates.
So Is A Bank Or Dealership Better for Auto Loans?
This entirely depends on your financial situation. First of all, we always recommend to go in and be pre-qualified from your bank. This way going in you know what the bank is willing to pay for a vehicle and the interest rates they are willing to charge. You can even ask if they will give you different loan lengths (such as 36 or 60 months). Have this in hand when you go to the dealership.
Special Incentive Programs with Auto Loans from Dealerships
When you go to the dealership, if you qualify for the top-tier loans, you may be able to secure a 0% APR loan. Many dealerships have specials throughout the year that will give you a zero percent loan. Few qualify for this, but if you do it will absolutely be better for you to take the loan offered by the dealership. This kind of loan generally is only for new vehicles, but if there are certified pre-owned vehicles there might be this kind of interest rate loan available. And even if the 0% isn't an option at the time you go vehicle shopping there will likely be a loan that is far superior than anything a bank can give you.
If Your Don't Have Great Credit
But what happens if you don't have a near perfect interest rate? What happens if you have a few blemishes that prevent you from getting that exceptional interest rate? Well this is why having the bank's pre-approved rate in hand will help. You can use it to leverage a better interest rate from the dealership. You can't leverage much when at the bank. The interest rate and loan specifics you are given won't change. However, because dealership will work with their own financing department they may do what they can to beat the bank. After all, dealerships with their own financing department will make far more money if they give you a loan and pull in interest instead of if they let a bank pay for the vehicle. Because when this happens the bank will make money off of interest.
So try to use what the bank approves you for against what the dealerships can offer. And always look at the bottom line and the interest rate. Some dealerships will try to show you rate plans that are extended further out that have lower monthly payments, but these rates may actually be higher long term.
One of the most frustrating things when it comes to buying a vehicle is the negotiating aspect of buying the vehicle. Thankfully many dealerships are starting to move away from this and will offer the specific sticker price. Make sure you do research through the manufacturer's website to pinpoint exactly what the vehicle will cost to make sure you are not being overcharged. You can then take the price one dealership is willing to give you and then see if another local dealership is willing to beat the price. Depending on the time of year and even the time of the money some dealerships are more willing to knock off a few hundred (or even a few thousand) dollars to ensure a sale.
Usually the end of the month is the best time. The sales staff may be trying to hit a sales number and, if they are a few vehicles under this, they might be willing to shave a few bucks off to make sure they get the sale. Likewise, if you wait for the new vehicle models to come out, the dealer will still have the previous year's models on the lot. They will do what they can to sell these previous year models. You can save big by buying one of these models.
Finding The Right Rate
The difference in even one percentage point of interest may end up saving you hundreds, if not thousands of dollars over the course of your vehicle loan. That is why you need to always shop around to find out what kind of rates and payment plans are available to you. Visiting your bank is an excellent location to start. Here, the bank knows your financial history and they are more likely to work with you in securing a loan, especially if your credit is less than sparkling clean (poor credit). With approval rates in hand you can then visit the dealership to see what the dealers are able to offer you. As long as you play your cards right you will secure an affordable car payment that comes with the best possible interest rate for the vehicle and your current credit.