Places to Apply for an Auto Loan

If you need to finance the purchase of a vehicle, there are several places where you might apply for an auto loan. Auto dealerships, banks, and credit unions all offer auto loans, and each of them has its own advantages and disadvantages. Here's why you might apply for a loan at each one.

Dealerships Provide Easy Access to Auto Loans

Most car dealerships offer financing options, and a lot of their sales are financed in-house. When a dealership provides financing, the loan might be offered by a few different organizations:

  • The dealership itself
  • The automaker that a new-car dealership works with
  • A captive lender that the dealership has an agreement with
  • A lender on the open market that the dealer finds

Regardless of who actually underwrites the loan, all of the application paperwork is handled by the dealership's finance department and everything is filled out on-site. This makes the actual process of securing a loan extremely convenient, as there's no other bank that you must visit or talk to.

Additionally, many car dealerships can find you a loan even if you have bad or non-existent credit. If your credit doesn't meet the requirements of a bank or credit union, you may still be able to get a loan from a dealership because they typically relax the credit requirements to qualify.

The drawback of financing through a dealership is cost. Sometimes dealership loans have higher interest rates, and dealers may add on a fee for the convenience they provide even if they're able to match other institutions' interest rates.

Banks Offer Low-Interest Rates to Qualified Borrowers

Banks that provide personal banking services (as opposed to business banking services) underwrite car loans and offer some of the lowest interest rates available. Their loans are frequently restricted to newer cars, though, and the low-interest rates are only given to the most qualified borrowers.

If you meet the stringent requirement of a bank's low-interest loan and you're buying a newer car, this is likely where you'll find the lowest interest rate. If you don't meet the low-interest criteria or are getting an older vehicle, however, the loan terms here may not be as favorable.

Credit Unions Provide Flexible Solutions

Credit unions tend to be smaller financial institutions that are owned by their members. Because they're smaller and member-owned, they can frequently provide more customizable solutions than banks and often have lower interest rates than dealerships. If you have average or poor credit, you might find a good auto loan solution at a credit union.