Buying a Car from a Bank vs. a Dealer

Before you head off to the car dealership, you should know about the different financing options you have for car loans, including bank auto loans.

 

Buying your first car is an exciting time! You’ve picked the model you’re looking for and the color that fits your style, but paying for it can seem scary and confusing. 

Before you head off to the car dealership, you should know about and understand the different financing options you have for car loans. We’re here to walk you through some of those and help you decide if it’s better to get car loans from a bank or a dealership.

How Does a Car Loan Work?

Regardless of where you get them, an auto loan works the same way as a personal loan. They’re essentially secured personal loans—the security is in the car you’re purchasing. 

You’ll be taking out a lump sum loan for the purchase of the new car, truck, SUV, or even motorcycle you want to buy. A down payment of some kind is usually required by the seller. Then, you can apply for the rest of the funding as a vehicle loan.

Once your loan is approved, you’ll start making monthly payments to the lender. The amount you pay each month will be based on the loan amount and the term or length of time you have the loan. You’ll also be paying interest on the loan, which will be added to the principal each month for the total monthly payment amount.

Terms for most car loans are between three and six years. If you’re looking for a shorter term, you’ll have to pay more each month to reduce the length of your loan.

How to Get Approved for a Car Loan

When you work directly with the car dealership, you can get your loan approved the same day you plan to purchase your new vehicle. This may sound like a great idea, but it can mean you’ll spend a long time at the dealership that day.

You’ll need to wait for their financial supervisor, and you’ll be in line behind anyone else buying a car at the dealership that day. There’s also the risk that you won’t be approved, or you might not be approved for the full amount that you need to finance the purchase. If that happens, you won’t be leaving with your dream car that day and will instead have to come back with additional money or choose a different, cheaper car.

If you’re financing a car through a bank, you can get preapproved ahead of time and be ready to go on purchase day. One of the biggest benefits to this is that you’ll know exactly how much you’ve been approved for and can spend on your new car before you even start looking around.

Once you’ve found something you like and can afford, you can walk into the dealership with the money in hand to drive away that same day. It also means that you can shop around for the best solution, like approval amount or term length. When getting a car loan from a bank, you won’t be locked into any financing terms with the dealership.

Another benefit of going into a dealership with a bank auto loan is that it’ll keep the salesperson from trying to persuade you to include unnecessary add-ons to your purchase. They might still try, but since you already have a set amount of money to spend, they will probably be unsuccessful.

When you’re buying from a dealership, there could be several people interested in the same car that you’re looking at. If you can walk in with money ready to go, including a down payment, you may be able to beat others to getting the car if they’re not preapproved yet.

What Do You Need to Qualify For a Car Loan?

No matter which financing option you choose, you’ll need to come to the dealership or bank with several pieces of information to qualify for car loan. 

Your credit score and income are two of the most important details your lender needs to know. They must ensure that you can repay the money they’re lending you. Having a good credit score will also open more options for you, like lower interest rates, meaning you’ll pay less for your loan over its term.

You’ll also need to be over 18 and provide information about your state of residence. For bank loans, you’ll need to disclose the vehicle’s age and value, and provide a title from the current owner. If you’re working through a dealership, they should already have all of this information.

Can You Finance a Used Car?

Whether you’re purchasing a car from a bank or a dealership, or buying a used or certified preowned vehicle, you can use any type of car loan for the final sale. The financing process will be the same, but if you’re financing through the dealership, it’ll take longer and have more restrictions.

If you’re not purchasing your car through an approved and licensed car dealer and instead buying it from a friend or an online listing, you can still get financing with a car loan. 

If this is the route you’re taking, you’ll likely get a personal loan instead of a car loan, and you’ll want to take this out at a local bank. Personal loans can be used for almost anything, so this option will work for a car purchase via a third-party seller.

As with a typical car loan, you should get preapproved before you’re ready to buy so you know exactly how much money you have to spend on a vehicle.

One important point to keep in mind is that interest rates may be higher if you’re not taking out a secured loan, so look around at different options your local bank has to offer.

Apply for a Car Loan with FNBT

When you’re ready to take out a loan for your new car, contact the lenders at First National Bank and Trust. We can help you make decisions quickly and easily so you don’t miss out on your dream vehicle. If this is your first car loan, we’ll walk you through the application and approval process to ensure you have everything you need when it’s time to buy.

Buying a car in Argyle, Beloit, Clinton, Darien, Delavan, Elkhorn, Janesville, Monroe, Rockton, Roscoe, Winnebago, or Walworth or Williams Bay? You can apply for a loan online or visit one of our convenient locations in Southern Wisconsin or Northern Illinois. Once approved, you can also log in and make your monthly payments online, making the whole process as easy as possible.

Contact us today to set up your car loan or speak to one of our lenders about the best options for financing your vehicle purchase.