How to decide between a car loan or dealer finance |
couple at dealership paying for car with car loan

Compare dealership finance vs. car loans

Save money by knowing your options before you jump into dealership finance or a new car loan.

There are a handful of options when it comes to financing a new car. Two of the most popular methods are dealer financing and new car loans. It’s important to know the difference between these two financing options to select the best one for you. Car Loans Car Loans

Get matched with a local car dealership to finance your car purchase. Bad credit, no credit OK.

  • Specializing in 'buy here, pay here' car loans. No banks or credit unions.
  • Typically hear back from a rep within 24 hours.
  • Free loan-matching service. No obligation offers.

    Dealership financing vs. auto loans

    Dealerships financing generally come with extremely low interest rates by, usually if you make a down payment or by trade in your car.

    Auto loans, on the other hand, are secured loans that use your car as collateral. Lenders give you a lump sum payment to purchase your car, and offer more competitive rates than you would with an unsecured loan. However, if you default on your loan you can lose your vehicle.

    Dealership financeAuto loan
    Interest rates
    • Can offer lower interest rates than car loans
    • Low interest rates may only be available for promoted makes and models
    • Commission for the car salesman may push rates up
    • 0% rate deals may indicate a higher purchase price for the car
    • Lenders offer various rates, which means you can choose the most competitive
    • Using your car as collateral lets you take advantage of lower rates
    Loan term
    • Typically 3-year terms
    • A down payment is generally required
    • Early repayment costs may apply
    • Choose rates between 1 and 7 years
    • Early repayment costs differ between lenders
    • The dealer finance representative handles the paperwork
    • No need to shop around for better offers
    • Gives you leverage to negotiate the sale price
    • A range of competitive car loans are available
    • Your car loan is repaid in full at the end of the term
    • You can choose your lender and loan type
    • Loans are available for new, used and classic cars
    • You need good credit to be eligible
    • It’s usually only available for newer vehicles
    • Down payments can be a large upfront cost
    • Higher interest rates may apply to certain types of loans
    • Upfront and ongoing fees may apply
    Who it’s best forBorrowers that want to buy a new car and have a down payment.Borrowers that want to shop around and have the option of buying from a dealer or a private seller.

    Compare car loans

    Rates last updated March 25th, 2018

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    Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
    Name Product Product Description Min. Credit Score Term of Loan Requirements Car Loans
    Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
    Varies by lender
    Must be at least 18 years old, a US citizen with a current US address and employed full-time or have guaranteed fixed income.
    Auto Credit Express Car Loans
    Get connected with an auto lender near you, even if you have bad credit.
    Typically 3 to 6 years
    Must be at least 18 years old and a current resident of the US or Canada. Must be employed full-time or have guaranteed fixed income of at least $1,500/month. Car Loans
    Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
    24 to 84 months
    Must be at least 18+ years old; have a Social Security number; make $24,000+/year; have no open bankruptcies.
    LendingTree Auto Loans
    Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
    Good to excellent credit
    Typically 1 to 7 years
    Must be a US citizen and 18+ years old. Must have good to excellent credit.

    Compare up to 4 providers

    Dealer financing & car loan side by side

    Who saved more money?

    Julian and Clay have both purchased new cars for $20,000 each. Julian opts for a car loan while Clay takes on a financing option from the dealership — so who chose the better financing option?

    Car loan

    Julian’s car loan comes with a 7% rate for a five-year period and pays $396 in monthly repayments. At the end of the loan he’ll pay a total of $3,761 in interest, amounting to $23,761 when all said and done.

    Dealer financing

    Clay, who takes on dealer finance, will pay $283 each month for the term of his loan. But his $5,000 down payment means he’s only charged interest on $15,000, resulting in lower ongoing repayments.

    When the loan is paid off, Clay will have paid a total of $21,980. That’s $1,781 less than Julian.

    Bottom line

    Convenience always comes with a price and that extends to the dealer-financed car loan. Before settling for what a dealer can offer, compare outside banks, online lenders and credit unions. In many cases, you’ll find terms that are better than the dealer’s.

    No matter what route you choose when car shopping, always put in the time to research so you understand how to get the most out of your options for car loans.

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