Financing Your Car through a Bank
When you finance your car through a bank or credit union, the lender runs a credit check and, if you pass, gives you a quote and a letter of commitment that you can take to a dealer. This has two advantages. First, you are now pre-approved for a loan and know exactly how much you can afford to spend. Second, a car salesperson will be less inclined to urge you to buy a vehicle that costs more than the loan for which you’ve been approved.
Another big plus: The interest rate on a car loan from a bank is frequently lower than what you would get from a dealer. That’s because most dealer loans actually come from a bank. To make a profit on the loan, the dealer has to mark it up by increasing the rate.
On the downside, the quote you get from a bank isn’t locked in until you provide it with the details about the car that you’re buying. This final approval process can sometimes lead to delays and changes to the initial offer. In other words, you could end up with a higher interest rate than what you were expecting.
Another thing to keep in mind is that banks often charge higher rates on loans for used cars than for new ones and may restrict your choices by placing limits on the age and the mileage of the vehicle that you buy.