Skip the auto shop - Our mechanics make house calls

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

dealership loan

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.

The statements expressed above are only for informational purposes and should be independently verified. Please see our terms of service for more details
Icon-warranty_badge-02

Skip the repair shop, our top-rated mechanics come to you.

At your home or office

Choose from 600+ repair, maintenance & diagnostic services. Our top-rated mechanics bring all parts & tools to your location.

Fair & transparent pricing

See labor & parts costs upfront, so you can book with confidence.

12-month, 12,000-mile warranty

Our services are backed by a 12-month, 12,000-mile warranty for your peace of mind.

Get A Quote

Need Help With Your Car?

Our certified mobile mechanics make house calls in over 2,000 U.S. cities. Fast, free online quotes for your car repair.

GET A QUOTE

More related articles

Insurance Requirements for Car Registration in Kentucky
The Kentucky Transportation Cabinet requires that all drivers in Kentucky carry liability automotive insurance, or “financial responsibility” in order to operate a vehicle legally and maintain vehicle...
How to Avoid Back Pain in a Car
If you have back problems, sitting in a car for an extended period of time can be excruciating. Even without back problems, you could experience discomfort and soreness from...
P2159 OBD-II Trouble Code: Vehicle Speed Sensor B Range/Performance
Diagnostic Trouble Code (DTC): P2159 P2159 code definition Vehicle Speed Sensor B Range/Performance...


Related questions

Q: I have been trying to verify a tsb has been done on this car but the dealership is a hour away.

Your TSB is a product update and any Honda dealer should be able to verify if your vehicle had it performed by using your VIN. You should be able to contact Honda USA in order to find out or at...

Q: C121C torque request signal denied and P0334 Cam shaft sensor

The cam sensor code (actually P0344), is known problem, and there is a Technical Service Bulletin (232460) that addresses this fault and repair. Check with your Dodge dealer to understand what the TSB covers or not. The C121C code has...

Q: Dealership left oil cap off after oil change.

I would not assume anything. Have them detail the engine good and clean any oil up. Do a completely new oil and filter change and make sure the cap is installed properly. If you would rather have another mechanic take...