Auto Loan Financing: Banks, Credit Unions, Dealerships, Oh My!

Written by Carly Simon-Gersuk

Buying a car comes with a lot of decisions to make. Picking the right type of car for you, spending time online or at dealerships looking for the right car, and figuring out how you will pay for your car. While some drivers can afford to pay for their car upfront, that is not the case for most. Most drivers will pay for their cars with an auto loan. This leads to another decision - where to get the loan from, a financial institution or the dealership?

There are many pros and cons to getting an auto loan from a financial institution or a dealership. Depending on your financial situation, picking one over the other could save you both time and money. So how do you deceiver which option is best for you? Let’s take a look at how these lender options vary.

Financial Institutions

Financial institutions, commonly banks and credit unions, pre-approve you for a loan before you go to the dealership. This establishes a relationship between you and your lender, cutting out the middleman. By eliminating the middleman, you are borrowing directly from the source and reduce any additional fees, and possibly getting a lower rate. Additionally, this pre-approval will save you time when you finalize your contract with the dealer as you already have your quote and letter of commitment from the lender. 

The rate offer from a financial institution will be the true interest rate and does not include possible markups. While financial institutions may offer lower rates, they can also come with less wiggle room on negotiations. Some institutions may also have limits on interest rates for new and used automobiles. Factors such as age and mileage may alter your offer. 


Getting your loan from the dealership makes the process a one-stop shop. This streamlined process of getting your car and loan in the same place can make it easier for you to drive your car out of the lot that day. This works by the dealer filling out a credit application for you and submitting it to multiple lenders. While it seems this may be an ideal option, the dealer may charge a higher interest rate to make up the difference for their handling of the financing. 

Before you go to the dealership you should still shop around for other loans before accepting the dealership’s offer. This will give you more leverage and means to negotiate on, possibly getting the dealership to offer a lower rate than your financial institution. Lastly, unlike financial institutions, dealerships can offer promotional pricing like 0% APR on certain cars for drivers that qualify. 

No matter where you decide to get your auto loan, do what you can to save money by shopping around before you settle on the best offer. If you narrow your decisions down to  what financial institution would be better, note that credit unions are a stronger choice. While the loan application and underwriting process do not differ much from that of a bank, credit unions offer lower interest rates and may have fewer requirements than banks. On our online marketplace you can drive home with an auto rate as low as 2.29% APR in our system now!

Happy shopping! 

(Explore our blog, “5 Reasons You Should Choose a Credit Union Car Loan” for more details on why you should finance your auto loan through a credit union.)


Written by Carly Simon-Gersuk