Taking out a loan for your next vehicle can help you avoid paying the full amount upfront. If you want to speed up the car-buying process while staying within your current budget, then you might be wondering what types of loans are available. Read on to learn about bank and dealership loans for buying a used car so you can make an informed decision about your upcoming purchase.
What Does It Mean To Take Out a Loan?
When you take out a loan for a used car, a lender pays for the vehicle upfront, and you agree to pay them back with interest through monthly installments over a set period. The vehicle you purchase serves as the collateral, which means the lender may repossess it if you're unable to make your monthly payments. Reviewing your loan options carefully can help you ensure you're able to pay back the loan in a timely manner.
For example, choosing a loan with a longer-term may result in lower monthly payments. However, it means you end up paying more in interest during the lifetime of your loan. The amount you pay for your used car upfront can also affect your monthly loan payments, interest rate, and loan term. While dealerships may allow you to drive your car off the lot without a down payment, saving a minimum of 20% to put toward your purchase upfront can reduce your monthly payments and save you money in the long run.
Research your loan options to get an idea of what type of loan terms may benefit your financial situation. Examine your current financial obligations and consider your plans for other large purchases to help you decide on a reasonable monthly payment limit. Knowing what your repayment goals are before you start negotiating your loan terms can help you secure an agreement that works for you.
Getting a Bank Loan vs. a Dealership Loan
There are pros and cons to getting a loan through a bank and through a dealership. Comparing these two options side-by-side can help you make an informed decision when you purchase your next vehicle.
Negotiations
While some people choose to contact their bank to discuss their loan options because they have an established relationship with them, banks, credit unions, and other financial institutions are often less likely to negotiate interest rates than dealerships are. This is because banks typically have a fixed interest rate they offer their customers, whereas dealerships can review the financing options available from multiple financial institutions to get you the best rate.
Time
Taking out a loan through the dealership you purchase your vehicle from can also make it easier to complete the entire car-buying process in one day. If you choose to work with a local bank, you usually need to set up a separate meeting before your car purchase to discuss loan options. Using a loan separate from the dealership can also complicate the buying process and extend the time it takes. If the length of time and ease of transaction is important, you may want to use dealership financing.
Promotions
Another key difference between bank and dealership loans is that dealerships have access to promotional offers, often from vehicle manufacturers. For example, many dealerships can offer a 0% interest rate for an introductory period or a bonus amount toward your down payment, which can save you a significant amount of money. Before deciding on your loan options, review your dealership's current promotions to learn more about some discounts and deals they may offer if you choose to take out a loan with them.
Benefits of Getting a Loan Through a Dealership
While you can get an auto loan through a bank or another financial institution, working directly with the dealership you plan to purchase your used vehicle from has several benefits. Here are a few of the reasons you might consider this type of loan.
More Lending Options
Dealerships can often provide you with more lending options because they have relationships with multiple financial institutions. When you fill out a loan application with the financing department at a dealership, they guide you through the entire process before reaching out to a wide range of lenders to negotiate interest rates on your behalf. This can help you make a more informed decision about how you choose to finance your vehicle.
Longer Loan Terms
The dealership you work with may also offer you longer loan terms than your bank would, which can reduce your monthly payment. This is a great option for shoppers who are on a budget. Dealerships also compile the best offers and explain each of them to you. This provides you with more options than securing a loan from a traditional bank or financial institution.
Added Incentives
Your dealership may also offer incentives like lower interest rates, cash back, or a high value on trade-in vehicles. This can provide significant savings. Finally, working with your dealership to secure a loan provides convenience by saving you a trip to the bank. This can save you time and get you back on the road faster.
Let CarSmart of Farmington, Missouri, Help You Secure Your Car Loan
If you're looking to purchase a used car in Farmington, Missouri, let our team at CarSmart of Farmington help you secure a loan. We're here to guide you through every step of the process and make sure you have the resources and tools available to choose the best option for you.
Find out how much you'll pay each month with our easy-to-use loan calculator and review our extra protection policies to make sure you have all the coverage you need. You can also get pre-approved for financing through CarSmart of Farmington by filling out a simple online form.
We make our financing options and payment plans transparent to eliminate guesswork and make sure you feel confident in your purchase. If have any questions or want to learn more about your financing options, contact us today!
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