Bank or Dealer Car Loan: Choosing the Best Option

November 12, 2019

Bank or Dealer Car Loan: Choosing the Best Option

Shopping for a vehicle is stressful enough. The variety of choices and price ranges can make a person’s head spin. What type of vehicle am I looking for? What colours? How much can I afford in monthly payments? How am I going to pay for it? Am I going to be able to get approved for a car loan?

These are the typical questions car shoppers ask themselves. While most are personal choices that can be easily resolved, the issue of car financing adds complexity to the situation. What is the best option for financing a vehicle purchase, a car loan from a bank or a dealer? The answer, of course, depends on the car buyer’s financial situation.

Financing Options for New Vehicles

New car buyers typically have two choices that result in relatively low-cost loans. The first is a bank loan. New car buyers are generally well-off, have a good credit rating, and the disposable income to afford a higher monthly payment. So, their first stop is with their banking institution’s loan officer.

Their file typically contains most of the information required for approval, so the loan officer just updates any changes and runs a credit check. If all is in order, the loan can be pre-approved in as few as 48 hours. The applicant should take note of the loan amount, interest rate, monthly payment terms, and the length of time to pay back the loan.

Just because an applicant has been approved for a car loan doesn’t mean it has to be accepted. A smart car buyer will use the terms to negotiate a better deal with a dealer. If they get better terms with the dealer, they can then try to negotiate better terms with the bank and so forth.

Dealerships often have more favourable car loan options in order to sell more vehicles. Enticements such as higher loan amounts, zero interest, low monthly payments, and extended payment terms need to be weighed against the terms of the bank loan. Then it’s buyer’s choice.

Used Vehicle Loans

Not all Canadians have the resources to purchase a new vehicle. The increasing cost-of-living in Ontario is squeezing the budget of many potential car buyers. But whether its for work or a second family vehicle, having reliable transportation is a necessity in today’s world. And the used car market is the source for those who don’t want to mortgage their future with high new car payments.

If the car or truck buyer has a good credit rating, has a good relationship with the bank, and can easily meet their payment terms, then a bank car loan may be the best option. They’ll likely get a more favourable interest rate than a used car dealer. But even if they’re likely to be approved, its worth their while to get Pre-approved at a few dealerships to compare car loan terms.

Banks by their very nature are risk averse. They want as much certainty as possible that the vehicle loan will be repaid. If the applicant has a lower income or some blemishes on their credit history, banks tend to steer clear of approving financing.

That’s where used car dealerships come into play. They consider the loan applicant as they are in the present, not judge by adverse financial situation from the past. They partner with several lenders to get the best financing option available based on an applicant’s current situation.

If a loan applicant has a low income, no problem, they’ll stretch out the term of the loan making it affordable. If the applicant has a less than stellar credit history, no problem, the loan will carry a higher interest rate. If the applicant has a decent down payment, it’s nearly 100% guaranteed they’ll be approved.

The best option for used car buyers is to get pre-approved from the comfort of their home. An online pre-approval takes just a couple of minutes and the loan applicant will know their status within 24 hours. has 100s of quality used cars, minivans, SUVs, and trucks at locations throughout Ontario.

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