Dealership Loan Or Traditional Banking Institution: Which Is Right For You?

If you are in the market for a new or used car, you might be questioning whether it is better to get a loan from a traditional lender or to go to a dealership to find financing. If you have an excellent credit rating and rapport with your banking institution, then it makes sense to investigate what types of loans they have available. Typically, traditional lenders are more lenient with loans for new cars than they are for used, but that depends on your credit rating and the individual bank.

There are many advantages to financing your car through a dealership. A dealership works with several different lenders. So if you have a less-than-great credit score or no credit history at all, then a dealership might be able to find someone to take the risk of lending you money. Being able to compare rates across many different lenders definitely gives those who might not have the best history more borrowing options.

Do you have a trade-in or a down payment?

If you have money for a trade-in or money for a down payment, then it will be easier to get a loan from the dealership; they will often offer you incentives for using their financiers, even for used cars. However, when buying a new car you will want to set your budget ahead of time, instead of basing your price according to how much you can afford per month. If you use your budget to determine the price you will pay, you will almost inevitably end up paying more.

If you do have money for a down payment, then using a traditional lender becomes easier and they might be able to give you a lower rate. But most often banks will not lend money to those who are in the market for a used car. Considered a much higher risk, if there is a mechanical problem with the car that makes it inoperable, then the owner will have no recourse and no way to pay for it. Used car loans are almost always better negotiated with the car dealers in Langley.

It affects your credit rating

To get a loan, the lender must check your credit history. Each time someone makes a hard inquiry into your credit history, there is a little mark on your score that can inch it down slightly. With dealership financing options, there only needs to be one inquiry made and that credit rating is then used to shop around to many lenders at once. This means the damage to your credit rating is minimal to none.

When you go to a traditional lender, they will have to do a hard inquiry, and then they will make a decision about whether they can lend you money or not. You have 14 days from that time for other lending institutions to make inquiries for them to be considered just one inquiry and not be a knock on your score. If you wait longer or shop around to different banks outside of that timeframe, then you will be putting little dents in your credit rating that can affect it for a long time afterward.

Timeframe

If you are buying a new car, then time might not be such a concern. But if you are in the market for a used car, once the one you want is gone, it is gone. If you wait to go to a traditional bank, the decision can take a long time and the disbursement of payment even longer. By the time you are approved and you have the money in hand, there is no guarantee that the car will still be available.

If you use a dealership finance option, then you know within about 30 minutes whether you can get a loan to afford to the car you have your eye on. You are usually out of the door and in your new car not just the same day, but within hours of making your decision.

The option of whether to finance your car through your bank or dealership is different for everyone and according to their personal financial situation. The one thing to keep in mind is that if you stick within budget and only pay for the car what it is worth — period — then it is just a matter of finding the best interest rate possible.

The post Dealership Loan Or Traditional Banking Institution: Which Is Right For You? appeared first on Home Business Magazine.