Auto Financing: In-house Dealership vs. Bank Loans for Newcomers, Bad Credit Holders, and Recent Grads
Data asymmetry, a situation where one party in a transaction has more or better information than the other, is never more evident than when purchasing a car and securing an auto loan. The dealership salesperson typically has a vast knowledge of vehicles and financing options, while you, as the buyer, may be overwhelmed with the multitude of choices.
As a newcomer, a person with bad credit, or a recent graduate, you need to make informed decisions about your auto financing options. Below, we delve into the pros and cons of dealership financing versus bank financing, helping you to navigate the car buying process confidently.
Dealer Financing vs. Bank Financing: An Overview
Many dealerships offer financing through their manufacturers, like Ford or GM. Some provide financing through a bank. While it is often said that the best deal on a new car comes with cash upfront, pre-arranging financing with a bank can offer similar advantages. Walking into a dealership with pre-arranged financing puts you in the driver’s seat when negotiating the price of a new vehicle.
Securing an Auto Loan: Dealer or Bank?
Car dealerships are motivated to sell vehicles and will go the extra mile to get you approved for a loan. They have several incentives at their disposal, such as financing for higher-risk borrowers, cash-back rebates, and zero or near-zero interest rates on auto loans. However, be wary of high-pressure environments that can lead to rushed decisions, like not reading the fine print or opting for unnecessary add-ons.
On the other hand, pre-arranging financing through a bank can relieve some pressure, allowing for a more rational decision about your budget and affordability. Rates can sometimes be lower than dealer financing, and having financing in place can give you an edge when negotiating the vehicle’s price. However, working with a bank can be more time-consuming, and there’s always a chance your loan application may be denied.
Your Auto Purchasing Checklist:
- Negotiate the price of the vehicle before discussing financing terms.
- Be prepared to pay in cash or have pre-arranged financing in place.
- If financing, never take more than a four-year term. If you need to stretch your payments over six, seven, or even eight years, you can’t afford the car.
If you’re struggling to secure a car loan due to your financial situation, consider applying through our user-friendly application form at Toronto Car Loans. We specialize in providing loans to newcomers, individuals with bad credit, bankrupts, and recent graduates. Within 48 hours, we can get you approved for a car loan and guide you on the path to improving your credit score.
*Toronto Car Loans is not responsible for the accuracy of this information, and this information is for educational purposes only.