Some people favor one type of vehicle financing over another. However, there's no way to determine where you can get the best deal without shopping around. Your bank, for example, may offer vehicle-financing rates to customers that beat special offers at local dealerships. In any case, ensure you understand the terms of special offers, because they usually include several restrictions.
Auto dealerships usually work with many finance companies, so they can offer buyers more financing options than banks. Moreover, buyers who have a few credit problems are more likely to get financing through a dealership than a bank. Some people also like the convenience of getting an auto loan and buying a vehicle in one place. Sometimes dealerships offer more buyer-incentive programs than banks, including cash-back bonuses for buying particular vehicle models.
Some auto dealers increase the interest rates that their financing companies offer to charge buyers higher rates. Consider your financing options at local banks before you shop for a car to ensure the rate a dealership offers you isn't significantly higher. The special offers that dealers advertise are usually limited to buyers who have high credit scores. Buyers typically finance vehicles for three to five years. Some dealers stretch out payments over six years to lower a buyer's monthly payments. However, that could eventually leave a buyer "upside down" on the loan, so that he owes more on the vehicle than it’s worth.
Couples who have accounts with different banks should find out whether any of their banks offer special vehicle-financing options. Some banks offer lower interest rates to customers who have several other accounts with them. Other banks offer discounted rates to customers who have their auto loan payments automatically deducted from a checking account. Unlike dealerships, banks also offer loans to buyers who want to purchase a car from a private party.
Banks usually have stricter qualifying standards for auto loans than dealerships do. They also reserve their lowest interest rates for prime borrowers. Those borrowers generally had credit scores ranging from about 680 to 739 in 2011, according to Edmunds.com. Borrowers who have lower credit scores may have to pay at least 20 percent of a vehicle's purchase price up front to increase their chances for getting a bank loan.
Frances Burks has more than 15 years experience in writing positions, including work as a news analyst for executive briefings and as an Associated Press journalist. Burks has banking and business development experience, and she has written numerous articles on consumer issues and home improvement. Burks holds a bachelor's degree in political science from the University of Michigan.