Which One Can Give You the Best Auto Loan Rate?

When buying a new car, it’s also important to look around for an auto loan, as interest rates can vary. And when it comes to interest rates, it’s important to be as low as possible. But which one can offer you the best interest rate on a car loan? The bank or the dealership?

A car dealer can offer many conveniences when applying for a car loan

If you are buying a car and need a car loan, the dealer you work with may be able to offer you financing. If you don’t know what you’re doing, this offer can be tempting, and you may even jump at it when the salesperson tells you that he will “find the lowest rate for you.” We can’t blame you, because the dealer offers the convenience of one-stop shopping for an auto loan.

Make no mistake, the dealer is going around the market for you and getting different quotes from the banks and credit unions they usually do business with. And while they may find a low interest rate for you, they may also raise the interest rate before presenting it to you. They do this to make a small profit on the deal, but you can always negotiate the rate. All you have to do is ask them to give you a “buying rate,” which is the rate the bank gives them to start with.

RELATED: It is possible to get a good car loan even with a low credit score.

The bank can approve you for a car loan in advance.

If you have the time and can make the effort, you can save on your interest by applying for a car loan at a bank or credit union. One of the advantages of applying to a bank is that you can get pre-approved to get an idea of your interest rates and loan terms at different banks, and then choose the one that best suits you.

Remember that you must apply for credit when you choose one and that the interest rate may vary slightly when you check your credit.

However, the advantage of applying for a loan directly from a bank or credit union is that you can find the lowest interest rate yourself and not have to worry about the broker quoting the rate. Also, you can then make your purchases from the dealer as if you were a cash buyer with a credit authorization in hand.

Several Toyota RAV4s are for sale at a Toyota dealer. Justin Sullivan / Getty Images.

It’s time to refinance your auto loan.

Which option should I choose when applying for a car loan?

If your credit score is on the lower end of the spectrum (640 or less), it may be easier to get your application approved if you apply to a merchant, since merchants generally have a special relationship with the banks from which they usually apply for credit.

However, if you have a higher credit score, you are much better off going directly to a bank or credit union. Keep in mind that some banks may approve you directly even if you have a lower credit score.

Keep in mind that some used car dealers offer a “buy here, pay here” service where they target customers with bad credit and charge them very high interest rates for their in-house financing. This option can also be tempting, but is usually not worth it.

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