Should You Take Car Financing from a Bank or Dealership?


Have you ever enjoyed the new car smell in a new car that you are test driving? It can be intoxicating. Not because of the smell alone but because this could be your car! 

The process of buying a new car can be a roller coaster of emotions. Knowing what to buy, when to say no, what extras to get, how to negotiate…. It can be exhilarating and stressful at the same time. 

Why Get a Loan in the First Place?

If you don’t have the cash on hand to buy a new car (and not many people do!), car financing is often the best option to get into a new vehicle. One thing you need to decide will be whether or not you choose to get financing through a bank or through the dealership where you buy your new ride.

Obviously, you want to make responsible financial decisions that will allow you to enjoy your new car while paying it off. You make sure of this by NOT buying more car than you can afford. 

Should I Do Any Financing Research?

This means knowing what choices will give you the best rates and loan terms. Incredibly, according to a study done by Deloitte, 35% of Canadians do not do any research into car financing options…. None! 

Also, according to a Canadian Federal Government report, extended loan terms (72, 84 and 96-month periods) are becoming more and more popular. This increases negative equity risks on top of increasing the overall price of the loans.

By doing your research and finding the best choice for you, you can not only save yourself time and money but increase the positivity of the experience you have with your vehicle. The more stress and strain your financial decisions cause you, the less you can enjoy your purchase. 

So how do you compare these two financing options? Are there alternatives, like purchasing with a credit card? 

If you already have one, you may consider using it to buy your vehicle. Should you buy a car with a credit card? Probably not. Even if you have done your research and found the best low-interest credit card you can get, bank or dealership financing will still be the cheaper option in the long run.

Consider these pros and cons of dealership loans versus bank loans to help you in the decision-making process.

The Dealership Loan

The Good: 

  • All the paperwork is done by the dealership. Dealerships have relationships with multiple lenders and will send out your application and bring you back the options. No need for you to do your own comparing.
  • They may be willing to negotiate on rates and terms.
  • Potentially lower rates than car loans

The Bad:

  • Salesperson commission may increase rates
  • 0% financing typically only available on higher-priced vehicles
  • Down payment is often required
  • Loans are often exclusive to new cars

The Bank Loan

The Good:

  • You can often be pre-approved for a loan with no down payment required
  • The loan may be used for any car purchase, whether it be new or used 
  • Shopping around at different banks and lenders give you more options to find the best rates

The Bad:

  • The legwork of doing comparisons is up to you
  • Potentially higher interest rates than some dealership loans
  • Early repayment fees may apply

Which is the Best Option?

The answer to that question lies within you. How much you have saved, how much you want to spend, and how much work you want to do all play an important part in your decisions. The key is to know your options and make the best choice for you and your needs.

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