Battle Royal: Dealership Vs. Bank Auto loans

It’s a common, everyday experience in America. Jimmy needs a new car, and has found one that stands out amongst the rest online. He heads over to the dealership with a twinkle in his eye, only to be bombarded with the high interest rates and fees that come with an unfavorable loan.

It’s enough to take the wonderful experience of buying a new vehicle and turn it into something that leaves a sour taste in our mouths for years to come, but what else is there to do? There’s no way to take charge of your loan, right? Wrong! Poor Jimmy could have chosen to finance his vehicle through a bank instead.

While the bank may not be the perfect choice for every type of loan, there are several reasons why it might win over the dealership when it comes to the battle of dealership vs bank auto loans.

In the Left Corner…

Weighing in at an average 2.5% markup, we have the dealership. This is the option of convenience, but that convenience is going to come at a price. Sure, the dealer has to make money, and we understand that, but if you’re looking for the best rates then you aren’t going to find them here.

The first, and most obvious, extra expense comes from the dealer doing the footwork of obtaining a loan from a bank for you. That might not always be the case, but when it is, you can expect a hike in what you would have paid had you gone to the bank yourself. The interest rates on the loan are more than likely going to be the same in this case, but the fees will add up before you know it.

From time to time, dealerships do offer special financing options that sound highly appealing. Be wary, though, these deals often require a near flawless credit report, and often entail a much shorter loan term (2-3 years on average). While a shorter term does mean less interest paid it also means higher monthly payments, making the deal useless to those who can’t fit such a payment into their budgets.

On the bright side, that convenience does mean you’ll be able to purchase and finance a car all in the same day. A dealer may also offer cash back rebates which can often be applied to the down payment, allowing you to borrow less money in the first place.

In the Right Corner…

Borrowing from a bank has one great advantage over financing through a dealership, you are in control. Using a site like Credit Karma, you can view your credit score for free and know what kind of rates you can expect beforehand. You can also take advantage of online loan calculators to give yourself a great idea of what your monthly payments and total interest will be.

Most commercial lenders also prequalify applicants, which allows them to know exactly what their price range is when purchasing a new vehicle. Being able to tell the dealer that you are guaranteed financing for a certain amount provides you with a powerful negotiating tool. Dealing with the bank directly also eliminates the cost of the middle man.

Choosing your local bank will also give you the benefit of working with someone you have business history with. This might allow for even better rates than you had expected, as well as help if you should miss a payment or fall behind. Your history with that bank makes them far more likely to work with you, as opposed to a dealer choosing a bank halfway across the country.


When faced with a dilemma of choosing between a dealership or a bank auto loan, you really can’t beat the benefits of working with your bank. You’ll save money in the long run through lower interest rates, and secure the kind of loan you deserve.