Buying a new or a second hand set of wheels can be an exciting proposition for anyone. You don’t necessarily need to have ready cash in hand to buy the vehicle of your dreams. There are multiple options when it comes to financing a car.
You can take your pick between dealer financing and bank auto loan options.
Car dealerships often provide preferential rates that might encourage you to sign on the dotted line. However, there are situations when you might find an auto loan from a bank to be the better option.
Advantages of a An Auto Loan From Your Bank
It is always better to talk to a bank when considering a car loan before you take one from the dealer.
There are fewer middlemen in a bank loan that could considerably bring down the cost. Here are some pertinent advantages of choosing an auto loan from a bank rather than getting a ‘buy here, pay here’ financing option from the car dealer.
Higher Buy Rate
With a dealer loan, you give your information to the dealer. He passes it on to an auto lender who authorizes the loan and provides an interest rate to the dealer also called the ‘buy rate’.
More often than not the dealer will quote a higher buy rate to you as compensation amount for handling the finance on your behalf.
With a bank auto loan, you would deal with the bank directly. A bank approves your loan based on your credit score, terms of transaction, vehicle type, loan amount interest rate, and loan term. This direct line of communication ensures that you are not paying anything extra in terms of fee, charges or compensation to your dealer.
More Negotiating Power
You can negotiate for better loan terms when you are dealing directly with the lender. A car dealer does not usually negotiate the buy rate. You could get a more favorable interest rate if you know the banker well.
You can even customize the monthly premium as per your repayment capabilities. You could save on interest charges by applying for a shorter duration. Or, you could seek more flexibility by acquiring longer term with lower monthly premiums.
Some bank lenders can pre-approve an auto loan. You can walk into a dealership knowing the kind of budget you have and the car you can buy. This confidence works towards better negotiation techniques and helps to further bring down the price of a car.
You can get a clearer picture of your loan eligibility and financing with a bank as compared to a dealership that might take advantage of your emotional desire to buy a particular car.
You can turn your bank into a one-stop shop for all your financing needs. You can effectively streamline different products such as mortgage and other form of loans. Some banks help make an auto loan possible by applying a home equity line of credit (HELOC) or a home equity loan.
Banks are established lenders as compared to the lenders your dealer might approach to have a loan approved. You can trust a bank to not stoop down to cheap tricks. Third party lenders can sometimes act as cheap money shops. You can profit in the long run by selecting banks with a large cash flow, good reputation and integrity.
Which Bank to Choose?
There are multiple benefits of taking up an auto loan from your existing lender. You already have a relationship with the banker which can save you a lot of time, money and effort.
Bank managers have a lot of leeway in providing discounts. You could get a great deal. Also, your bank knows you as a person and not just a statistic. You would get better customer service from your existing bank.
That said it is best to shop for loans before you select on a lender. You cannot blindly trust your existing bank to give you the best loan terms. Auto loans can be judged on various factors such as interest rate. You should always seek the lowest interest rate and fee or charges (if any).
How to Compare the Rates?
You need to compare various rates offered by multiple banks to find the best one. Processing charges, foreclosure charges, loan value and other terms should also factor in your decision. There are a number of free online portals where you can compare multiple auto loan products. Here are a few of them:
Datatrac allows you to compare up to 10 auto loan results at the same time. You can get loan interest rates filtered on the basis of your area and loan duration. It has one of the largest current databases of banks, financial institutions and credit unions.
ERATE is another current online platform which has its search listings powered by Informa Research Services. You can compare various banks and financial institutions based on loan type, state and loan amount.
You can get various bank auto loan interest rates on the same page based on the area and loan duration. The rates are actively updates and it provides other information such as fee, penalties and discounts as well.
Tips to Get the Best Dealer Finance
Bank auto loans might not be an option if your credit score is hit or you do not meet their stringent criteria. This leaves you with no other option than dealer financing. Or, you might prefer dealer financing for some other reason.
These tips will help you secure the best deal while negotiating with a car dealer for an auto loan.
- Never work backward from monthly payments. Always focus on negotiating on the car purchase price to bring it down. This also gives you more flexibility to negotiate the buy rate later.
- Knowledge is power when it comes to interest rates. Make sure you do your homework before visiting the dealership. This will give you the right negotiating tools.
- Never shy away from changing your mind. Just because you considered purchasing from a dealer, does not bind you to a contract. You can keep fishing for options and select the one most favorable to you financially.
The Bottom Linef
You should begin with a credit assessment. If you have good credit, then you a bank auto loan would usually be a better choice. You will pay less in interest while dealing with an established lender. There are multiple platforms where you can compare different interest rates.
You should select a ‘buy here, pay here’ option from the car deal only when you do not have good credit or you are getting a more attractive offer with some additional incentives.