Knowing the Difference Between Dealer-Arranged and Bank Financing
Dealer-Arranged and Bank Financing is different. With dealer-arranged financing, the dealer gets information from you and forwards that information to one or more prospective auto lenders. Alternatively, with bank or other lender financing, you go directly to a bank, credit union, or other lender and apply for a loan. There are even lenders online where it will be easier for you to apply for a loan, like the xn--forbruksln-95a.com. You can even diversify your loans in to different items, not only only on house or car.
Bank lenders can pre-approve you for a loan. If they are willing to make an auto loan to you, the will quote you an interest rate, loan term, and maximum loan amount based on your credit line and terms of transaction. The lender will then give you a quote or a conditional commitment letter before you go to the dealership.
On the other hand, with dealer-arranged financing, the dealer collects information from you and forwards that information to one or more prospective auto lenders. If the lender(s) chooses to finance your loan, they may authorize or quote an interest rate to the dealer to finance the loan, referred to as the “buy rate.” The interest rate that you negotiate with the dealer may be higher than the “buy rate” because it may include an amount that compensates the dealer for handling the financing.
One must always remember that dealers may have discretion to charge you more than the buy rate they receive from a lender. Which is why you should be able to negotiate the interest rate the dealer financing offered through the dealership with the rate and terms of any pre-approval you receive from a bank, credit union, or other lender. Always choose the option that best fits your budget. Once the auto purchase is finalized, the dealer-arranged loan may then be sold to the lender, who has already indicated a willingness to extend the credit.
There are some types of leaderships that finance auto loans “in-house” to borrowers with no credit or poor credit. At “buy here pay here” dealerships, you might see signs with messages like “No Credit, No Problem!”. Do note that the interest rate on loans from these dealerships can be much higher than loans from a bank. You may want to consider whether the cost of the loan outweighs the benefit of buying or investing on something.