When it comes time to finance a vehicle, getting it done at the dealership is pretty darn convenient.
But next time you buy, explore your options. Many borrowers find that financing through a community bank saves money on interest, and getting prequalified or preapproved before you shop comes with many other money-saving benefits.
One method isn’t inherently better than another. To help you choose, we’ll show you the advantages of financing your next vehicle through a community bank.
Getting preapproved or prequalified for vehicle financing: How does it work?
Getting preapproved or prequalified through your community bank essentially means you meet with the lender and get a solid idea on the price range and monthly payments your budget can handle. From there, the lender completes a hard credit pull and gives you a quote that includes loan amount, interest rates and what the monthly payments look like. When you finally choose a car, you take out a direct loan from the bank.
What happens when you finance your vehicle at the dealership?
Financing your vehicle at the dealership is a convenient way to buy a car. After all, when you find a car you like, the dealer arranges the loan on your behalf so you can take your car and go.
- You complete a loan application.
- The auto dealership taps into its network lending partners. These lenders complete a hard pull on your credit history, and return with an offer.
- The auto dealership presents you with one or more offers. After the paperwork is complete, you can roll out with your new set of wheels.
Trying to decide which car is best for your budget? Here’s our guide to new vs used cars.
Dealership financing: What to know before you buy
Dealership financing is a snap, especially if you found exactly what you want. But it's important to understand what happens with dealership financing and what it means to your bottom line so you can make the best financial decision.
Cost of convenience
It may come as no surprise to you that there’s a cost to the convenience of financing your vehicle at the dealership.
Look at the loan paperwork from the dealership and you should find one of these two terms: finance reserve or dealer reserve. This is the commission the dealership gets for handling the financing, and it can add 1 to 3 percentage points to your interest rate.
In other words, you'll likely be paying directly for the markup with a higher interest rate.
Not to imply there's anything untoward about this arrangement. Like any other business, the dealership needs to recover their costs and maintain a profit margin. But as a consumer, it helps to know what you're paying for.
Zero-percent financing
So, what about those zero-interest financing ads you see on TV? This type of loan would certainly be great for your monthly payment. Keep in mind, the borrowers who qualify usually have credit scores rated “excellent” (740 and above). Also, these offers are reserved for specific makes and models because these deals usually originate from the automaker’s financing department.
If you think you have a shot at qualifying, zero-percent financing is worth a look. But if you fall in love with a car and then learn you don't qualify for this great deal, it can be a tough pill to swallow.
Benefits of vehicle financing at a community bank
Getting prequalified or preapproved before you shop can transform your car buying experience. Here's a look at how.
Helps you stay within budget
Choosing a loan and a car on the same day has a definite downside. In addition to the added time you’ll spend at the dealership—likely getting cross-sold products you may not need (extended warranty, for example)—when you’re caught up in the buzz of choosing a shiny new set of wheels, it’s easy to push aside your doubts and end up with a loan and vehicle that costs more in the end.
Getting prequalified is like going in with a shield against high-pressure sales pitches for more expensive models with extra features. Your wallet will thank you!
Lets you shop around
When you separate the financing from the car buying, you'll get time and space to mull your options more thoroughly. Hopefully, this approach gets you a vehicle you’re happy with at a price your budget can handle.
Makes you a better-informed buyer
Speaking of keeping the financing separate, your community bank lender will have a somewhat different perspective than your car dealership when it comes to your loan, and they’ll be more than happy to share their expertise. If you are interested in customizing the terms of your loan, the community bank lender can work with you, and walk you through the details of your options.
Keeps you in control
By getting prequalified, you'll walk into the dealership knowing exactly what you’re in for when you choose your vehicle. There will be no financial surprises.
Competitive interest rates
Community banks can offer competitive interest rates for vehicle financing, which in turn, can save you money and put more wiggle room in your budget to afford the upgrade you want.
Get prequalified for your auto loan at Minnwest Bank
Before you hit the dealership, get prequalified for an auto loan at Minnwest Bank.
- Getting prequalified gives you extra bargaining power at the dealership.
- We have competitive rates for new and used automobiles.
- We can customize the terms of your loan to meet your needs, ensuring your monthly payments fit into your budget.
Our lenders bring a personalized, friendly service, and are happy to share their expertise to help you make the best choice for your budget. Contact one of the helpful lenders at Minnwest Bank to get prequalified today!
