Dealer Financing

Daniel Robinson is a writer based in Greenville, N.C. with expertise in auto insurance, loans, warranty options and more. Away from the keyboard, Daniel spends time with his wife and son, plays guitar and obsesses over the Beatles and Baltimore Orioles.

Edited by RaShawn Mitchner Senior Editor

RaShawn Mitchner is a MarketWatch Guides team senior editor covering personal finance topics and insurance. She’s spent over a decade writing and editing articles about how to save money on travel, entertainment, household services and more.

Our Research Process Edited by RaShawn Mitchner Senior Editor

RaShawn Mitchner is a MarketWatch Guides team senior editor covering personal finance topics and insurance. She’s spent over a decade writing and editing articles about how to save money on travel, entertainment, household services and more.

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Financing a car purchase at a dealership is a convenient option. However, when the dealer connects you with a lender, you’re likely to get a higher interest rate than you would with other types of financing.

In this article, we at the MarketWatch Guides team examine how dealer financing works. We give you tips to make the most of it and know when it’s the right option for you. We’ve also reviewed the lenders with the best auto loan rates to help you make the most informed vehicle buying decision.

Key Takeaways Related Resources

RefiJet

How Dealer Financing Works

Dealer financing — also known as in-house financing or dealer-arranged financing — involves the dealership acting as a middleman between you and an auto lender. You’ll find in-house financing options at both independent dealerships and franchise dealers that are tied to a specific manufacturer. This financing is provided by the dealership itself, a third-party lender or a finance company owned by the vehicle manufacturer.

There are benefits of dealer financing, with convenience at the top of the list. It’s nice to just fill out one loan application instead of comparing rates from several lenders. You can also find your ideal car before you sit down to discuss financing options.

The basic steps of getting a loan through a dealer are simple:

Should You Get Dealership Financing?

Dealer financing is a good option for those with bad credit that are interested in car loans. Many dealerships specialize in working through credit issues to find the right auto financing. In many cases, this approach is more effective than reaching out to multiple banks and online lenders.

Dealerships often work with networks of lenders, while many manufacturers have their own financing arms as well. This means you’ll receive a variety of financing offers when you apply for an auto loan at a dealership. In this way, financing through a dealership can be like a one-stop shop for comparing loan offers.

Car dealerships also offer incentives on loans and leases. If you can qualify for these types of promotional offers, you may get a lower annual percentage rate (APR) than you could with a traditional bank, credit union or online lender.

Remember that interest rate and APR don’t mean the same thing. Your interest rate reflects what you’re charged to borrow money, spread out over regular payments. The APR includes both your interest rate and any fees or charges your lender assesses.

How To Prepare for Dealership Financing

It’s important to be fully prepared before you go to a dealership to get a loan for your new car. Being financially informed is the best place to start. Here are a few things you should do ahead of time:

1. Check Your Credit Score

You need to know where you stand with your credit. This is especially important if you don’t have a very long credit history.

How To Improve Your Credit Score

If your credit score isn’t as high as you want it to be, here are a few simple strategies to boost it before getting to the dealership.

Graphic showing seven tips to improve your credit score

2. Decide on a Down Payment

The higher your down payment, the less you actually have to finance. That means you’ll pay less in interest over the course of your loan term as well.

3. Revisit Your budget

Be sure you can afford your monthly car payment. Many lenders and dealerships offer online car loan calculators to make this easy.

How To Get the Best Deal on Your Loan

There are a few tactics salespeople often use to pressure customers into getting dealer-arranged financing. If you decide to go with dealer financing, use these strategies to improve your odds of getting a good deal:

Focus on the Overall Cost

Rather than negotiating with monthly payments in mind, be sure to discuss the total cost of the vehicle. When you negotiate your monthly payment, you’re discussing both payment amount and timeframe, which may give salespeople more opportunities to introduce markups. Focusing on just one factor — the overall cost — makes for a more grounded negotiation.

Read the Fine Print

Before you sign any loan paperwork, make sure you actually have preapproval for the APR you want. Dealers sometimes include a clause that leaves terms open to change. The phrase “pending approval” is one you don’t want to see.

Take Your Time

As you visit dealerships, don’t let a salesperson’s claim of low inventory pressure you into a decision. If you’re looking for a common model at a common trim level, there will certainly be other vehicles for you to purchase at a later date.

Dealer Financing: The Bottom Line

Getting financed through a dealership can be a good option if you have less-than-perfect credit. If you want to try dealer financing, we suggest visiting multiple locations to compare offers. Taking your time and avoiding high-pressure sales tactics are key strategies in getting a good car loan at a dealership.

Recommended Alternatives to Dealer Financing

If you want to go beyond a dealership to finance your auto purchase, we recommend the following loan providers:

Autopay: Best Auto Loan Rates

Autopay is an online auto lending marketplace that offers a wide range of loan terms. You can stretch your payments from 24 to 96 months. This is especially nice if you’re able to pay off a loan quickly.

Autopay is available to borrowers in all 50 states and has a minimum credit score of 560. You can take out loans ranging from $2,500 to $100,000.

PenFed Credit Union: Best Credit Union Auto Loan

PenFed was once available only to members of the military and their families, but is now open to the general public. The company offers loan terms of 36 to 84 months and amounts from $500 to $150,000.

PenFed has a minimum credit score of 650. The credit union also has its own car buying service for borrowers with good credit.

Dealer Financing: FAQ

Below are frequently asked questions about dealer financing:

Is it better to finance through a dealer or a bank?

We recommend shopping around for a loan through a bank or other traditional financial institution before going to a dealership. This method allows you to compare interest rates with more clarity and avoid rate increases an auto dealer might try to attach late in the process.

What does financing mean at a dealership?

Basically, a dealer acts as a middleman between you and your auto lender. This can be a good thing, especially if you have poor or even fair credit. Dealers will take your credit application to multiple lenders and present you with several financing options.

If you have excellent credit, you can qualify for special incentives dealerships sometimes offer. These special deals often include 0% APR financing .

What is an advantage of financing your car through a dealer?

Receiving loan offers from multiple lenders makes dealer financing a one-stop shop for car buying. If you have credit issues, dealers can work with you to find lenders that offer lower interest rates. Financing at a dealership also allows you to negotiate your down payment and see how it will affect your loan in real time.

Our Methodology

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.

Here are the factors our ratings take into account:

*Data accurate at time of publication.

If you have feedback or questions about this article, please email the MarketWatch Guides team at editors@marketwatchguides. com.