When purchasing a car, one of the biggest decisions you’ll make is how to finance the purchase. While many car dealerships offer financing options, there are a variety of reasons why securing financing outside of the dealership may be a better option for you. In this article, we’ll explore five reasons securing funding outside of the dealership can be beneficial.
1. More Competitive Rates
One of the most compelling reasons to secure financing outside the dealership is the potential for more competitive interest rates. Dealerships may offer financing options, but these rates are often higher than you could get through a bank or credit union. This is because dealerships use markup on interest rates to profit from financing.
When you secure financing outside the dealership, you can compare rates from multiple lenders to find the best option. Banks and credit unions often have lower interest rates because they don’t have the same markup as dealerships. This means that you could save thousands of dollars over the life of your car loan by securing financing outside of the dealership.
2. Better Negotiating Power
When you secure financing outside of the dealership, you gain more negotiating power when it comes to the car’s purchase price. This is because you can walk into the dealership with a pre-approved loan, which means you’re a cash buyer. This can give you an advantage when negotiating the price of the car, as the dealership won’t be able to push you into a higher price by offering to finance.
In contrast, when you rely on dealership financing, the car’s price and the loan terms are often tied together, which can limit your ability to negotiate.
3. More Flexible Terms
Another benefit of securing financing outside the dealership is the potential for more flexible terms. When you get financing from an outside source, you can often choose the length of your loan term, which can help you find a monthly payment that fits your budget. On the other hand, dealerships may only offer a limited number of loan term options.
In addition, banks and credit unions may offer more flexibility regarding the down payment and trade-in options. This can be especially helpful if you have a trade-in or down payment that you’d like to use towards purchasing your new car.
4. Avoiding Add-Ons and Extras
Dealerships often try to upsell customers on add-ons and extras, such as extended warranties, gap insurance, and service contracts. While some of these products may be beneficial, they can also add thousands of dollars to the cost of your car purchase.
When you secure financing outside the dealership, you can avoid the pressure to purchase these extras. This can help you stick to your budget and avoid unnecessary expenses.
5. More Transparency
Finally, securing financing outside of the dealership can offer more transparency regarding the terms of your loan. Dealerships may use confusing language or hidden fees to make their financing options appear more attractive. When you secure financing through a bank or credit union, you can often better understand the terms of your loan and any associated fees.
In addition, banks and credit unions are often more transparent regarding their lending practices. This means you can be confident that you’re getting a fair deal and not being taken advantage of.
While dealerships may offer financing options, there are many reasons why securing financing outside of the dealership can be a better option. From more competitive rates to better negotiating power and flexible terms, obtaining funding through a bank or credit union can help you save money and make a more informed decision when purchasing a car.