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Why Should I Get a Car Loan from a Bank Instead of a Dealership?

You’ve been looking at new cars, and you think you’ve found one you like. But before you even step foot inside the car dealership, do you have a plan for how to pay for that new car? You might not think that matters — after all, you can either get your car loan from your bank or from the dealer. There’s really no difference, right?

a couple is happy car shopping

Not so fast. Don’t touch those new keys until you understand the differences between bank car loans and dealer car loans — and know why a bank might be your best bet for a car loan. Here are four reasons why you may want to consider getting a bank car loan over a loan from the dealership.

1. A Bank May Preapprove You For A Car Loan, Which Could Save You Thousands.
Getting preapproved for your car loan means you know the loan amount, the rates and the terms ahead of time. A preapproval isn’t a guarantee the bank will give you the car loan; what it provides you is a clear picture of the car you can afford. This is helpful because you and the car salesperson know your financial ceiling. Instead of the salesperson trying to get you into a car out of your price range or tacking on a lot of add-ons, you both know upfront what you can afford. While some car makers’ finance companies will offer preapprovals, you’re limited to buying that automaker’s car. So for example, a preapproval for a Honda loan won’t work for a Hyundai.

2. Your Interest Rate From A Bank May Be Lower.
To make your life easier and save you a trip to your bank, dealers are happy to do the loan work for you. All you have to do is fill out a loan application and the dealer will come back with the best interest rates. However, dealers commonly raise the interest rate of the car loan they present to you, and pocket the extra money.
For example, if a bank preapproved you for $40,000 with a 3% interest rate over 60 months, you’d pay $43,125 with $3,125 in interest over the life of the loan. But if the dealer offers you a 5% interest rate, you’d pay $45,281 with an extra $2,156 in interest.

3. A Bank Won’t Pressure You To Buy A Car.
If you test-drive a car and fall in love with it, you might make an emotional decision without comparing your financial options first. A car salesperson may ask you what it will take to get you to buy that car today; they’ve got quotas to fill and commissions to earn. But a bank will look at your credit history and your banking relationship when determining your car loan interest rate. If you’re a loyal customer of the bank, you might get better rates and friendlier terms. Again, a preapproval isn’t a loan and you have time to shop around to find the right car at the right price.

4. With A Bank Loan, You’re Not Tied Down To One Dealership.
Just as with a preapproval letter, your bank car loan means you’re free to buy any make and model car you want. You’re not stuck with just one automaker.

How To Buy A Car With A Bank Loan

If you’ve got your preapproval letter in hand, you’re almost ready to start shopping! We say “almost” because you’ll also want to take these three steps:
  • First, figure out what you can afford. Are you buying new or used? Use a helpful auto loan calculator to see what your payment would be or compare two auto vehicle loans.
  • Next, decide how much cash — if any — you plan to use as a down payment. The higher the down payment, the less money you’ll need to borrow from the bank.
  • Finally, do a lot of test drives. You may think you know just the car you want because you’ve done all the online research. Then you actually sit in the driver’s seat. You may find there’s not enough head room, or the seats are uncomfortable, or you don’t like how the car performs on the highway. The only way you’ll know is to get behind the wheel.

How To Find The Best Bank Or Car Loan

If you’re looking for the best bank for a car loan, look for a bank that offers low rates and flexible terms, and makes their decisions locally, so that the funds get into your pocket sooner. First National Bank and Trust offers all this and much more. To get yourself started on the road toward owning a new car, truck or SUV, find a location near you to talk to one of our banking professionals.