Car Loan Financing Through Dealership Or Bank?

When it comes to financing your next car, there are mainly 2 different routes you could take; financing through a dealership or bank. So, how could you know which route to take?

Everyone’s situation is different and there are certain times where you would choose one over the other, this article will discuss the main reasons for and against each option. Let's do this!

Car Loan Financing Via Dealership

Dealerships are generally easier to go through compared to a bank, you send them your application and they will do the rest of the financing work for you, and you will be handling the finances at the same place you purchase the car.

This however, comes at a cost, literally. Dealers rates have to be marked up in order for them to make money so they may end up being higher than a bank loan.

A benefit of dealerships is that they often offer low rates, and they will commonly have promotions such as a 0% interest plan for an amount of time. They are also able to add customization options to the car that you would otherwise not have (such as seat warmers or a security system).

It is important to note though, that many dealerships only have promotional activity on their new models.

Dealerships are often more accommodating when it comes to credit score. Banks tend to be more lenient towards those of us who have good or great credit scores (660+). With Car Nation Canada Direct for example, anyone can qualify for a loan no matter what credit score.

Car Loan Financing Via Bank

One of the biggest advantages of auto financing through a bank is that there is no middleman (the dealership), so there will be no extra markup rate for interest which could give you a better deal.

To go along with this, the bank you choose to go with will likely be close to home making contact about your loan that much easier. Another advantage of having no middleman is that banks can often approve quite quickly, especially if you have a good credit score!

A car loan from a bank allows you to be completely pre approved and ready to buy before you even step foot in the dealership, which means you don’t necessarily have to decide exactly what car you want first.

Also, bank loans can also be used for any dealership or even private sellers, instead of being limited to the dealership that you would otherwise be applying with.

Unlike dealerships which are quite negotiable and accommodating, banks tend to steer away from those that have a bad credit score and may give you a worse deal than what you could otherwise get with a dealership.

They are also less comfortable with negotiating things like interest rate, the amount of the loan, and other terms of payment.

How Banks Make Money

Banks make money by issuing loans to borrowers that have to repay the loan with interest.

How banks make money. Source: Marketing Mind

The banks have a considerable amount of overhead, so they will do everything to maximize revenues.

The more money you borrow from the bank, the less interest you should have to repay, provided the loan is secured with collateral.

A mortgage, for example, involves hundreds of thousands of dollars, so the bank will charge you a lower rate to win your business compared to a car loan which is for sums usually under one hundred thousand dollars.

The bank has to deal with underwriting the car loan and servicing the account, so they will typically charge you a higher rate than what you would pay for a mortgage.

If you're ready for a car loan in Southern Ontario, we'd love to help with that! simply fill in the form below to get started.