Who will give a better rate on a car loan, the dealer or a bank? If an auto loan is considered high risk, what options are available for a good rate with bad credit? This article gives some insight into these questions and helps to prepare the consumer that’s searching for a car loan.
Car Dealer or Lending Institution for an Auto Loan?
There is no definitive answer as to whether the dealer or a lending institution will have the best rate on an auto loan. It largely depends on certain circumstances like:
- new car;
- used car;
- individual credit score;
- loan amount;
- car value to loan amount;
- estimated depreciation rate; and
- down payment amount.
When looking for a loan for a new car, the manufacturer will often offer a low financing rate (sometimes a 0% rate). In most instances, the consumer has a choice between a factory rebate or a low financing rate. In some cases, the actual rebate amount could exceed the finance charges.
Finding the Best Financing Rate on a Car Loan
Whether buying a new or used vehicle, many consumers will rely on the car dealer for their financing. Some lending institutions may actually give a better rate than the dealer. Before taking it for granted that the dealership would offer the best rate, it’s always best to shop at other lending institutions to keep the dealer honest. Some alternatives may include:
- banks;
- savings and loans;
- credit unions; and
- insurance companies.
Once the best rate is found, consumers maybe able to use it as a bargaining tool with the dealer for a better rate. When a choice of a rebate or low financing rate is offered, compare the rebate amount to the total finance charges over the life of the best rate loan. If the rebate is a higher amount than the total finance charges, taking the rebate can save a few dollars.
Getting the Best Bad Credit Car Finance Loan
Just like any car loan, it’s always a good idea to shop for the best rate. Some dealerships have a good working relationship with lending institutions and maybe able to get a higher credit risk consumer a better rate than the consumer going directly to the banks.
Using a co-signer with good credit, that will assume the risk if the primary buyer defaults on the loan, is an option for a better rate. Another consideration is to install a GPS device that the lending institution can use if the buyer defaults on the loan. Both of these options lowers the risk to the lender and could possibly result in a lower finance rate.
If a consumer is looking for a pre-owned certified vehicle, the dealers rates are normally hard to beat. If the selling price of the vehicle is to high, it will make it much more difficult to get a good rate on the loan. It’s always a good idea to find out what a car’s worth before making a financed purchase.
The bottom line is not to rely on the dealerships loan rate when purchasing a new or used car. Always shop around to get the best rate. When looking for a car loan, it’s always best to do some homework to find the best car loan-financing rate.
James Clausen - Clausen received a Bachelors Degree in Business Administration in Automotive Management and Marketing at Northwood University, graduating ...
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