You’re ready to purchase your next vehicle, but where are you going to get auto loan financing?
You’ve heard that banks are a great option. The dealership finances everyone you know who has recently purchased a vehicle. Your local credit union is always sending your offers. How do you decide which financing option is best for you?
Ultimately, it comes down to your financial background and what you’re looking for from a lender.
Below you will find three of the primary auto financing options along with the pros and cons associated with each.
3 Primary Auto Loan Financing Options
There are three main options for obtaining auto loan financing. Each has its advantages and disadvantages, so selecting one will depend on what’s most important to you related to getting an auto loan.
Credit Union
As a member of a credit union, one of the benefits is getting loans through the organization.
Credit unions are known for offering excellent customer service and treating their members as more than an account number. You can expect the same level of service when getting a loan.
Lenders will look at your history with the credit union and your financial background to determine your eligibility. You’re more likely to be able to speak to a loan specialist about your application and explain anything on your record that might typically make it more challenging to qualify.
Above all else, credit unions generally offer the lowest interest rates across the board, which can save you thousands of dollars throughout your loan term.
Pros of Credit Union Auto Loan Financing
- You get better customer service.
- You can qualify for a lower interest rate.
- You can get financing for a smaller loan amount.
- There’s more flexibility in gaining approval.
- You can shop around for pre-approval to find the best deal.
- It’s a great option if you’re building your credit or you already have a strong credit history.
Cons of Credit Union Auto Loan Financing
- You have to qualify to be a member. This is typically very easy, but it is one extra step to take if you’re not already a member of a credit union.
Bank
A bank is another option to get your auto loan financing.
You can expect updated technology related to the application process and a quick turnaround time since many are larger companies.
However, the rates are probably higher, which means you’ll pay more over the length of your loan than you would at a credit union. This is unless you have excellent credit, and you’re purchasing a newer vehicle. In that case, getting a vehicle loan from a bank could work out well for you.
Pros of Bank Auto Loan Financing
- If you have superb credit, you might qualify for special financing.
- You can shop around for pre-approval to find the best deal.
Cons of Bank Auto Loan Financing
- There’s often not a personal connection with loan representatives.
- Bank interest rates are higher.
Dealership
Dealership financing is another option that is very popular when purchasing a vehicle. There are two types of dealership financing options. Most dealerships work with banks and credit unions to help their buyers find the best financing, while others offer a buy-here-pay-here loan.
The buy here pay here loan is typically for buyers who aren’t able to qualify for financing anywhere else. By getting it through the dealership, they pay much higher interest rates, and their overall terms are less desirable.
When dealerships work with their network of banks and credit unions to find the best financing for you, you can still expect to pay a higher interest rate than if you went directly to the lender yourself. This is because the dealership makes money off of the deal, so the fees are higher.
The only time you can expect to pay less from a dealership than a bank or credit union is when you purchase a new car, and the manufacturer is offering special financing like 0% on a particular model year.
Pros of Dealership Auto Loans Financing
- You get the convenience of buying your car and getting your loan in one place at one time.
- There’s more flexibility in financing with extended terms and higher loan to value ratios.
- If you have excellent credit, you might qualify for financing as low as 0% or get a special rebate offer.
Cons of Dealership Auto Loan Financing
- You’re more likely to pay a higher interest rate at a dealership.
- You don’t select your financing company, so you often agree to work with a company you have no experience with.
What Auto Loan Financing Option Is Best For You?
When it comes time to select auto loan financing for your next vehicle, you want to consider two things. Your credit history and the type of relationship you want to have with your lender. At a credit union, we offer the best of both worlds.
Whether you have an excellent history or you’ve had bumps along the road, we’ll provide you with a high level of customer service from beginning to end on your auto loan financing journey.
