If you’re ready to buy a car, the first question is where to get the money. Most people think about the dealership’s finance desk or a traditional bank, but the right choice isn’t always obvious. In this guide we’ll break down the key differences, show you where the hidden costs hide, and give you practical steps to pick the best deal for your situation.
Dealerships love to offer financing because it’s easy for you – you can walk in, pick a car, and leave with a loan paperwork on the same desk. The paperwork is usually simple, and salespeople often promise quick approvals. That convenience can be a huge plus if you’re in a rush.
However, convenience comes with a price. Dealerships work with a network of lenders, and they may add a markup on the interest rate. This markup is often called a “dealer reserve.” It can push your APR a few points higher than what you’d get from a bank. In plain terms, a 5% loan from a dealer might actually cost you the equivalent of a 6% loan once the markup is added.
Dealership financing can also include extra products like extended warranties, GAP insurance, or paint protection. These add‑ons boost the dealer’s profit but increase your monthly payment. If you don’t need them, you’re paying for something you never use.
Banks and credit unions usually offer lower interest rates because they have less incentive to add hidden markups. They also provide more transparent loan terms. You’ll get a clear breakdown of the APR, any fees, and the total amount you’ll repay.
The downside is the process can take longer. You may need to submit an application, wait for underwriting, and possibly provide additional documentation. But the wait often translates into lower monthly payments and less overall cost.
Banks also tend to have fewer add‑on products. If you want extras like GAP insurance, you’ll need to shop for them separately. This can be a good thing because you can compare prices and only buy what you truly need.
So, how do you decide?
In many cases, a bank or credit union will give you a lower interest rate and a clearer picture of what you’re paying. But the dealer’s offer can be a handy shortcut if you’re comfortable with a slightly higher cost for the sake of speed.
Bottom line: don’t settle for the first number you see. Get a quote from your bank, ask the dealer for the full APR breakdown, and run the numbers side by side. The option that saves you the most money in the long run will be the smarter choice for your car purchase.
Is it really better to get a car loan through your bank? This detailed guide breaks down what you need to know, including comparisons, real costs, and hidden risks.
Read More