Auto loans 101: Financing options

Looking for a loan for that vehicle you’ve had your eye on? You probably want low interest rates, good customer service and an easy loan process. See this comparison of credit union vs. bank. vs. dealer auto loans to make sure you get the best deal.

Buying a car can be exciting, and having a preapproved loan makes shopping for a car, truck or SUV an easier experience whether you’re looking for a new or used car. There are two primary choices when it comes to applying for a car loan: going directly to a lender such as a credit union or bank, or having the dealer arrange financing for you. There are advantages to each, but also some differences to consider. In this video, we compare credit union vs. bank vs. dealer-arranged auto loans to see how the competition stacks up in three key areas.

Interest rates

Credit Unions:  Credit unions are member owned, not-for-profit institutions that distribute profits back to members in ways such as lower interest rates and fees on loans. On average, interest rates from credit unions for new car loans are lower than bank rates.¹

Banks:  Most banks operate as for-profit institutions owned by stockholders. With a primary focus on profit, decisions on interest rates assigned to loans are often influenced by the amount of profit to be made.

Dealers:  “Dealer financing” doesn’t mean you get a loan from the dealership itself. Dealers don’t lend money directly, but they do take applications to help you secure financing with a credit union, bank or other dealer-arranged lender such as auto manufacturer financing ( e.g., MINI Financial Services for MINI customers). Dealers typically build relationships with certain lenders, but you can still request financing through your own bank or credit union when at the dealership if you prefer.

Customer service

Credit Unions:  Because they are member-owned and usually serve a certain community, customer service at credit unions tends to be more personalized. You don’t need to be a member of the credit union to apply for a loan, however once approved you’ll need to become a member, which is easy and comes with numerous benefits including personal finance education.

Banks:  National banks typically have more physical locations than smaller community banks or credit unions. However, larger banks tend to have less of a one-on-one relationship with their customers.

Dealers:  It may be convenient to have your financing arranged through the dealership, but dealers typically work with certain loan partners — and your credit union might not be on that list! If you prefer to work with a lender that you already know and trust, consider applying for pre-approval at your credit union or bank before you shop. This way, the dealer knows upfront where you’re getting your financing.

The important thing to remember is that you have options when it comes to financing a new or used car. Choose the option that makes the most sense for your situation. Whether you go with a credit union, bank or dealer-arranged auto loan, it’s worth taking the time to shop around for what works the best for you in terms of interest rates, customer service and flexibility.