Getting yourself or your family a car is a big step in life. Whether you plan on buying a new car or a used car– it does not change the fact that it is something to be excited about. A car is not like any other necessities in your daily life, and it is not a loaf of bread that you could pick right off the shelf and pay with cash. Once you have decided to buy a car, the next question is how are you going to pay for your new ride? Either you simply buy the car with the extra $20k that you have in your wallet or find a company that would help you finance a car.

If you are like the rest of us who do not have an extra $20k plus lying around, there is hope and a couple of options for us! You can dealer finance or secure a car loan from the bank. Like pretty much everything else in life, both of these options have pros and cons. So, which one should you go for?

What is the Difference Between Dealer Finance and Car Loan?

Dealer finance is when you get in touch with a dealer, then the dealer contacts their bank or loan company to help you arrange a loan for your car. They would let you know about the car financing rates and all the other important details. This method allows you to skip the troubles of dealing with the paperwork and other arrangement since the dealer will handle this part on our behalf. 

A Car Loan is when you apply for a loan from the bank or loan company on your own. You will have to arrange all the details and paperwork of the loan yourself. Then you can use the money to buy the car from the dealer.

Pros and Cons of Car Finance through Dealers

Dealer finance is a pretty straight forward process. You decide to get a car, pick a car, discuss the details, then the dealer offers to finance the car for you. Since you are already there, your tendency would be just to go with the flow and accept the dealer finance. It may sound like a convenient option, and frankly– it is! But that is not the only reason why it seems like a good option.

The Advantages of Dealer Finance

  • The process is simple. You simply have to inform your dealer how much you can afford to pay on a monthly basis and they will take care of all the details with the bank or lender.
  • The dealer will make way to finance a car– your car to be specific. The dealer is committed to making the deal work, after all, they want to sell the car. They will make sure that you get your finance so they can make a sale.
  • Car Finance through your dealer is an option if you have poor credit. Some dealers will offer financing packages to buyers with a poor credit history which is a huge advantage.

However, there are still some drawbacks in this seemingly good setup.

The Disadvantages of Dealer Finance

  • You may not be getting the best deal in the market. The dealer will make the sale happen, but you this may mean that they would just go with the deal that will get your financing approved. 
  • The dealer has all the cards. Since the dealer has full control of the situation, you might feel a sense of obligation towards the person that is helping you secure finance for your new car.
  • Car Finance through a dealer may cost you more. There is a risk that the dealer would mark up your monthly payment in order to make a little profit for themselves. It is not a pleasant thought when you want to save up plus closing the deal with you is already an income on their part. 

Pros and Cons of Car Finance through the Loan

When you are getting a loan on your own, you would be handling your application to the bank or loan company by yourself. This may sound like a tedious, time-consuming job– but it may be worth it in the long run. 

The Advantages of Car Loan

  • You will have more negotiating power. Since you are going to be dealing directly with the lender then you are in a position to negotiate the payment structure and if you are confident with your negotiation skills, you might even get to negotiate the car financing rates.
  • You can get better interest rates. Dealers may offer their own interest rates which may sometimes be a markup on the bank’s rates. If you get a car loan directly with the bank, you can get the best deal possible.
  • You will have more power over the dealer. A lender can prequalify you for a loan and let you know you how much you can expect to borrow. This gives you a great advantage when talking to the dealer since you would not feel a sense of obligation towards your dealer as you no longer need their assistance to finance the car.

The Disadvantages of Car Loan

There is not much disadvantages in getting car finance through car loan, as a matter of fact, there may only be one:

  • It is not as convenient as dealer finance. You will be handling the transaction from calling the banks, submitting details to closing the deal. Contrary to dealer finances where all you have to do is show wait for your dealer’s update.

Which Option to Pick

Everyone has their own personal preference and situation. Right now, a car loan may seem like a better choice since it has fewer disadvantages, but again, it is different for everyone. For example, you may be too busy to handle the loan yourself, in this case, you may want to opt for dealer finance. Maybe you want to ensure that you get the best deal or car finance interest rate since you want to save some money and still get the car– then in this case car loan is the clear winner.

At the end of the day, it is all up to you and what you think is best. Regardless of which one you will choose, you would still end up with a car in your garage.