Buying a New Car? Should You Finance Through a Dealership?

Financing an auto loan through a dealership is quick and convenient. The dealership may have a relationship with a specific lender, or operate a "buy here, pay here" business. However, financing through the dealership may not present the best financing package. Smart car buyers put forth great effort to receive the best price and a reasonable interest rate. This may require securing your own financing.

Pro's and Con's of Dealership Financing

New car buyers may be unaware of their options. You do not have to obtain financing through the car dealership. Of course, the dealership will never reveal this information to you. By using their lenders, the dealership has the power to increase the interest rate in order to boost their profit.

For example, if the lending institution re-submitted a quote with an interest rate of 5%, the dealership may charge 7%. The best way to avoid this common practice is to secure your own financing, or compare rates from other auto loan lenders.

Get Pre-Approved for an Auto Loan

Getting pre-approved for an auto loan has several advantages. For starters, you are able to get quotes from several lenders, and then compare these quotes with the dealership's offer. Moreover, a pre-approval will make the car buying experience quick and easy. You already know your qualifying amount, thus you will not be pressured into buying a car you cannot afford.

How to Compare Lenders for an Auto Loan

Many car buyers avoid comparing rates and fees because they do not want to submit applications to several lenders. However, there is a way to obtain multiple rates without contacting each individual lender. Online auto loan brokers are the quickest and simplest way to receive multiple offers from various lenders.

Brokers work directly with hundreds of lenders. Upon submitting an application through a broker, your information will be forwarded to several lending institutions. These lenders will review your information and submit a quote. The broker will compile all quotes and remit this information for you to review. You should carefully compare quotes, and choose the lender that offers the best rate and terms. In some instances, the dealership may offer the best financing.

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Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.