Credit Unions vs. Dealership for car loans

Banks & Credit Unions vs. Dealerships: Where Should You Finance Your New Car?

When it comes time to buy a new car, one major question arises: how do you finance it? Making sure to stay on top of auto payments is crucial, and how you choose to finance a vehicle can be a factor in whether or not you can do so. In addition, a good deal on a new car is made even better by considering your financing options wisely and avoiding high interest or other pitfalls.

When looking to receive an auto loan, your choices fall within two major categories—financing through a dealership and direct loans through a bank, credit union, or other finance company. Understanding how these work and how they differ from each other is an important step in purchasing your new vehicle.

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Dealer-Arranged Financing

Many dealerships offer you the opportunity to connect you to potential auto lenders while you're negotiating for your new car. The dealer will send a credit request to multiple lenders, and any that approve will send an offer for the dealer to pass to you, including a quoted interest rate. The primary advantage here is speed and convenience as the financing work can potentially be completed on the same day that you come in to pick up the vehicle.

Additionally, dealers often have contact with a variety of banks and can send out requests to many of them at once, making them equipped for easily tracking down low rates for your loan. However, dealers often mark up the rate given by the bank, taking the additional interest as payment for the service of handling financing, and may have partnerships with particular banks to whom they'll sell your loan. It can pay off to assess other options instead of relying solely on the dealer.

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In-House Dealer Financing

In some cases, a dealership may provide an alternative in the form of "in-house" auto loans, usually for buyers with poor or no credit. These are sometimes called "Buy Here, Pay Here" dealerships and may announce this option with phrases such as "No Credit, No Problem!"

Along with the convenience benefits that come with dealer-arranged financing, this is presented as a means for anyone with a weak credit score to still get the necessary financing for their car. However, this puts the dealer directly in control of the conditions of the loan. In many cases, the costs associated are rather high, and you may be able to find better rates with other lenders anyway. Some unscrupulous dealers may also install devices in their vehicles to remotely disable them when buyers miss payments. As with conventional dealer-arranged financing, consider your options first.

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Direct Auto Loans

When you turn to a credit union or bank for an auto loan, the lender will assess your financial history, credit score, and the vehicle you want to buy to provide a quote. They then either pre-approve you for a loan, letting you take the quote to the dealership for further negotiations, or directly provide the funds to the dealership on your behalf. While the comparison shopping is left to you, you can expect no markups, and a good credit score means rates will often be in your favor.

The lack of a middleman also provides a sense of security for many borrowers, and you can set up automatic monthly billing with the bank to avoid the risk of forgetting a payment. In many cases, borrowers turn to their own credit union for a loan, relying on the existing relationship for better rates. Others can find viable lenders via services like Better Loan Choice, which provides contacts for local lenders for any kind of loan.

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Finance Your New Car Today

Local banks and credit unions can offer a way to get the new car you need without putting you at the mercy of the dealership. For auto loans in New Mexico, turn to Del Norte Credit Union for financial transparency and expertise from an institution that's part of your community.

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