Financing Your New-to-You Car: Why a Dealer May Not Be Your Best Choice

You’re planning on purchasing a new-to-you car so you can save a load of cash. Why turn around and spend those savings on a high-interest loan? While setting up your financing at the dealership is convenient (and, according to them, a natural step in purchasing your car), it is not always in your best financial interest.

What a Dealership Wants

A dealership’s number-one priority is making money, of course. That’s made clear every time you haggle for a price. They want to work with you to make the sale, but they’re certainly not a charity, either. Once they get you to commit to a car, their next step is to get you to commit to their financing plan.

Many dealerships run their loans through large banks. Since these banks are owned by shareholders, their rates are higher than those offered by member-owned credit unions. In fact, according to Bankrate.com, the average rate on a 5-year car loan from a credit union is at least 1 percent lower than a bank loan rate. This could mean a difference of several hundred dollars, maybe even $1,000, over the life of a loan.

What a Credit Union Offers

Another significant benefit of financing through your local credit union is working with an organization that has ties to the community. When working with a large bank located in a big city hundreds (thousands?) of miles away, you are literally nothing more than a number. If you run into a problem with your loan or hit a rough patch with your finances, it can be difficult to get a personal response or flexible solutions. With a credit union, however, you are part of the community that builds it. You’re a name and face more likely to receive the personal attention you deserve.

Sometimes a dealership may work with a credit union, which is almost always a better choice than a bank. However, even in that case, it is better to take charge of your loan and shop around, especially if the dealership has chosen a credit union that isn’t located in your community. When it comes to loans, staying local matters.