When it comes to financing your car purchase, there are several options to select from. For instance, you can finance your car purchase either with the help of bank loans or through dealerships. If you are thinking of financing your car purchase through any of these options, and you are not sure which is better, you are on the right page. Before making your decision, it is quite important that you understand what both entail.
Financing your car purchase through a bank loan involves approaching a credit union like Empower Federal Credit Union offering auto financing or a bank directly to obtain a car loan. This is done before meeting the dealer. The bank will give you a letter or quote to present to the owner of the car. This quote will make the process stress-free. The presentation of quotes with a specific amount on it saves you from unnecessary add-ons from the dealer. So if you are thinking of this option, make sure to enquire more about it.
When applying for loan pre-approval, the application can either be done at local branches or online. This is dependent on the lender you are using. While processing, you may be required to provide some specific information about the car; if you can’t, be ready for a delay in approval.
With bank loans, you will be given the actual interest rate with no markup included. However, the rate quote isn’t final. Once you have agreed to buy the car, the bank will perform a comprehensive credit check. Thereafter, a review of your credit report is done, followed by approval and determination of loan rates. One key thing to note is that depending on the type of car-whether old or new; your interest rate can vary.
Dealer financing works almost the same as banks but with a few differences. With a dealer, after an agreement is reached, you will be given a credit application form. After you are done filling it, the application form is submitted to various lenders. This is done to allow you to compare interest rates and pick the one that suits you.
In some instances, you may be given a higher interest rate by the dealer. In this instance, what the dealer does is add a markup to the amount you should pay. The difference in the actual rate offered by the lender and what you are being offered is usually taken as compensation by the dealer for financing the car purchase. As a result, you may end up paying more than if you used a bank. However, getting financing through dealerships is usually more easy and straightforward compared to banks and credit unions.
In general, lower interest rates are usually available for new cars compared to older vehicles as they are more expensive or have more mileage to give before a breakdown. In some cases, dealers may offer promotional financing. This is usually reserved for brand new models.
Choosing the Best Option
In whatever situation you find yourself in, picking a car financing option that works for you should be your priority. To do this effectively, you might need to make a lot of comparisons. If you are planning to finance your car purchase, it is best to get pre-approved quotes from banks or credit unions before going to the dealership. By doing this, you can easily make comparisons and pick the one that suits your interests.
It is crucial to note that applying for car plans may impact your credit score irrespective of the option you pick. For every loan you apply for, an inquiry on your credit report will be made. This may worsen your credit score because multiple loan applications within a short period can have adverse effects. However, if your rate shopping is done within a short period, all the inquiries involved will be merged into one.
Proper Preparation Before Applying for Auto Loans
Although figuring out the best means of financing your car is important, you shouldn’t neglect the preparation part of things. For beginners, you need to examine your credit score to know your chances. If it needs to be improved, work on it and take the necessary steps before applying again.
Also, make efforts to have down payments for the loan. The more the down payments, the less you deposit monthly, and the easier it will be for you to pay back the loans.