Pros and Cons of Financing Through a Dealer vs. Bank

Pros and Cons of Financing Through a Dealer vs. Bank

Posted on July 5, 2024

In the Great White North, getting behind the wheel of your dream car involves more than just a wistful glance. Whether you’re eyeing a sleek sedan, a rugged SUV, or a zippy hatchback, understanding car financing is your golden ticket. When deciding to buy a car through finance, you must weigh the pros and cons of financing through a dealer vs. bank. Let’s break it down.

Dealer Financing

There are several good reasons for taking finance through a dealer. Dealers will be able to offer a variety of financing options, often through the manufacturer’s financing division, an independent financial institution, or the bank they use for their business. The vehicle and financing are all in one place, speeding up the process, and dealers may provide dealer or automaker incentives, which can include rebates or lower-cost financing.

There are also some downsides to consider when taking finance through a dealership. Dealer financing might apply mainly to brand-new or slightly used vehicles. The dealers may also have slightly higher interest rates than banks and push for more expensive loan products.

Bank Financing

Bank financing is a well-respected method of buying a car. With a good banking history and credit score, you may get a lower interest rate, and you can qualify for a pre-approved loan, simplifying the entire financing process. Banks may also offer used-vehicle funding that dealers might not provide.

On the other hand, banks often charge administration fees, increasing the overall loan cost. At a bank, borrowers with a poor credit history may find qualifying for a loan challenging. Also, going from bank to dealer and back again to sort out the loan issues can take extra time and be inconvenient.

Navigating Car Loans: Your Roadmap to Smart Financing

What’s the best route to take with these two options in front of you? If you’re in good standing with your bank and have a great credit score, we recommend getting a pre-approved loan from the bank before approaching the dealer. With this loan approval in your pocket, you have an ace up your sleeve when talking to the dealer. 

If the dealer offers a higher rate, you can produce your re-approval, which may encourage them to provide better terms. If not, then use your pre-approved loan to purchase your car immediately. If you aren’t in good standing at the bank, you’re unlikely to get pre-approval, leaving you to negotiate with the dealer.

As with any financing option, you should be wary of a few things. Issues such as the length of the term offered, subprime interest rates, and the fine print in the contract are all critical considerations. Also make sure you can afford the insurance, especially on high-end vehicles, and maintenance.

Steering Toward Financial Freedom: Wrapping Up Your Car Financing Journey

When financing a car in Canada, you’ve got options. At the bank, buckle up for competitive interest rates, flexibility and pre-approved loans. Dealerships offer a combo deal, car, and financing in one take-away pack. You’re welcome to meet with the financial experts at Faraz Auto Sales, North York, Ontario, for a frank discussion on luxury car financing in Toronto.