What's the Cheapest Way to Finance Buying a Car? | YourMechanic Advice

What's the Cheapest Way to Finance Buying a Car?

When you finally make that big decision to buy a new car, there are many options you have to consider. Obviously, you have to consider what kind of car you want and what prices fit into your budget. Financing a car is big responsibility to take on. Between the down payment, insurance, your monthly payments, and routine maintenance, a lot of money goes into owning a car. Most people try to save money wherever they can and deciding what lender to use is a huge part of that. Most people either go with a loan from a bank, lender, or use the dealership financing options. So, which one is the cheapest?

The simple answer is: it depends. There are a lot of factors that control how cheap or expensive different lenders are.

  • Banks are generally the cheapest lenders. Many banks, and especially credit unions, offer interest rates on their loans that are less than 10%.

  • Generally, dealership interest rates run higher than a bank’s interest rates because they are the middle man. They markup whatever interest rate the banks offer them. Generally, the average markup is about 2.5%. The amount that a dealer can markup the interest rate is controlled by the state.

  • But, dealerships do run great deals from time to time. Many dealers have specials where they offer 0% for a certain amount of time. No interest means a cheaper car payment for the specified amount of time. You can’t beat that! Banks and other lenders will not be able to offer you that cheap of an interest rate because they wouldn’t be able to make money that way. Dealers are already making a profit from selling you the car, so the 0% interest rate is their incentive to bring you into the showroom.

  • Dealer interest rates can also be negotiable. While interest rates at both the dealership and the bank are based off of credit scores, the dealership has some leeway in the rate they charge you because of the markup. If they give you an interest rate you don’t like, you may be able to haggle your way out of it. The bank interest rates are set and there is no way to talk them down from it.

  • While the dealership is a one-stop shop, making it easy for you to get your loan and your car all at once, most banks and credit unions will allow you to apply for a loan online in minutes.

  • Bank Rate publishes three months trends in average car interest rates. This will help you determine if the rate you’re being charged is reasonable.

Long-term affordability depends on the interest rate you receive and how long it lasts. The better credit score you have, the better chances you have of getting a good deal on an interest rate. Paying for a car can last anywhere from 3 to 7 years, at most, so a cheaper interest rate is key to paying less for the car in the long run. Take your time and do your research before you jump headfirst into financing a car. Keep an eye out for promotions from the dealer as well as your bank. Timing your purchase just right can lead you to saving money in the long run.


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Shawn

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Shawn
11 years of experience
Toyota Camry - Oil Change - Lancaster, Pennsylvania
On time. Explained everything that was done and noted an issues that had occurred from a prior oil change that I could take up with the previous garage. I highly recommend Shawn.
Mercedes-Benz C300 - Oil Change - Norristown, Pennsylvania
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20 years of experience
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BMW X5 - Oil Change - Santa Clara, California
Pradeep was punctual, informative, knowledgable and professional throughout . I would highly recommend him .
Ford Expedition - Oil Change - Saratoga, California
Called and came much sooner. Did a prompt and neat job. Friendly and very easy to communicate with. Recommend, based on my experience.

Stacy

23 years of experience
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23 years of experience
Audi A6 Quattro - Oil Change - Atlanta, Georgia
Very, very kind and thoughtful young man! I was very pleased with his demeanor and class! Quite an asset to your Co. Also a good mechanic, thank you for sending him!
Scion xA - Oil Change - Atlanta, Georgia
Quickly rotated my tires & oil change. Let’s me know what is going on with my vehicle during the process. Highly recommended.

Tinashe

12 years of experience
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Tinashe
12 years of experience
Mazda 3 - Oil Change - Atlanta, Georgia
I have used Tinashe multiple times for my vehicle service. He is always quick and thorough with his top-quality work. I have never been disappointed!
Ford F-350 Super Duty - Oil Change - Alpharetta, Georgia
Tinashe I feel did a great job as he listened to my request and handled what I needed done. I will be requesting him again.

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