Bank or Lending institutions: Where should I get my car loan?

You’re at the showroom and you’ve found your dream car. You get all excited and are ready to grab the keys, drive away, but then, the dealer asked you how are you plan on financing it.

There are two common ways to finance a car: through bank loans or through lending institutions. Of course, being able to buy a car in cash is the best option but we all know it’s not realistic for most of us. While banks are rather a separated entity to get your finances from, most dealerships are tied to several lending institutions and credit unions as an additional service to car buyers. However, which of these two is a better choice? Finding the best way to finance your purchase that suits your needs and capabilities can be a challenge. 



  1. You can get your loan pre-approved. The first thing you should really want to do is go to your favorite bank and get a pre-approval on a car loan. This way, the bank will let you know the loan amount, rate, and terms you’re conditionally approved for. Knowing how much you’ve been pre-approved will help you avoid markups and extra expenses.
  2. It’s like buying in cash. Since most bank loans are independent with the dealer, it permits you to buy a car with the same amount of money as cash, giving you the power to negotiate and secure the best deal. These loans usually feature fixed interest rates and a set repayment period. Therefore, you’ll be able to plan your finances better.
  3. You won’t be restricted by mileage limits. Mileage limitations are common in car finance agreements. However, because you’re treated as a cash buyer, you don’t have any links to the dealer or manufacturer once you buy the car. So, you may use it as you see fit – and even sell it if you want to. You’ll still be responsible to pay back the loan.


  1. You have limited flexibility in negotiation. Although banks don’t raise their interest rates because of the absence of a middleman, they usually have a fixed long repayment period. It can be tempting to take out a long loan to keep your monthly payments low, but bear in mind that the longer the loan lasts, the more interest you’ll pay and the more you’ll spend in total.
  2. Not everyone can be qualified. Applying for a bank loan can be a little harder for some. The amount of the interest rate and length of the predetermined loan term is based on your credit score, debt-to-income ratio, and even the sort of car you want to buy. Even though you can still get a bank loan if your credit score and history aren’t great; you’ll still have to pay a higher interest rate.
  3. It may take some time to get approved. A pre-approval doesn’t always guarantee an approved loan and it’s not always the final offer. The bank will have to do a rigorous credit check and analyze your whole credit record. With banks doing tons of different transactions every day, it may be a while before you can get your keys.



  1. The dealer will do the work for you. Most of the time, what happens is the dealership sends your information to a number of different loan companies at the same time and then contacts you with the best offers or lowest monthly rates. That means you won’t have to deal with or discuss the financial aspects of buying a car.
  2. They offer very competitive finance deals. Financing through lending institutions not only allows you to obtain better interest rates, cheaper payments, and overall costs. Since you’ll be provided with several options, they also provide you with more negotiation power, allowing you to haggle a better deal on the car.
  3. You can be eligible even with a low credit score. Buyers with low credit ratings may be approved for financing especially if they go through dealerships. The dealer may offer you additional benefits for using their services such as a 0% interest rate for a limited time or discounts on optional car equipment.


  1. They have higher interest rates. Because these loans provide a greater risk to the lender/dealership, interest rates are much higher. There is a slight bump in the interest rate that some dealers add on. But, if it gives you the convenience of not having to 
  2. You’ll be constrained by mileage limits. This means that if you go beyond the mileage limits, you’ll have to pay a fee per mile. You also don’t completely own the vehicle until all of the loans are paid off, and getting out of a contract early without incurring a termination charge isn’t usually easy.
  3. Second-hand purchases can be difficult. Especially if you’re buying a used car, your interest rate or maximum loan term may be affected by factors such as the vehicle’s age, history, or particular mileage. A lender will not want to offer you a long payback time on an automobile that will not endure the duration of the loan.

You might have a number of car finance alternatives because banks, credit unions, internet lenders, and dealerships all provide loans. Nonetheless, banks and dealerships are willing to work with you in order to get you the keys to the car that you desire while keeping their accounting department pleased.

Whatever kind of financing you pick, just be sure you understand how much you’ll pay each month and over time, as well as the contract’s specific terms and conditions. Take the time to apply for a pre-approval and shop around. Then, once you’ve found a car, investigate whether the dealer can match your best loan offer. 

You can also always contact us for all your car financing questions.