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Auto Loans 101: Credit Union vs. Bank vs. Dealer Financing

Looking for a loan for that sweet vehicle you’ve had your eye on? You probably want low interest rates, good customer service and an easy loan process. See this comparison of credit union vs. bank. vs. dealer auto loans to make sure you get the best deal on your wheels.

Buying a car can be exciting, and having a preapproved loan makes shopping for a car, truck or SUV an easier experience whether you’re looking for a new or used car. There are two primary choices when it comes to applying for a car loan: going directly to a lender such as a credit union or bank, or having the dealer arrange financing for you. There are advantages to each, but also some differences to consider. Here we compare credit union vs. bank vs. dealer-arranged auto loans to see how the competition stacks up in three key areas.

Interest Rates

Credit Unions: Banks are owned by shareholders, so their goal is to make profits for their shareholders. Credit unions are owned by members, and all profits go back to members in the form of lower interest rates and fees. Interest rates on new car loans from credit unions average more than 2% lower than bank rates.1

Banks: Banks often advertise promotional rates for auto loans and will sometimes lock in an interest rate on a loan preapproval offer for a limited time (usually 30 days) while you shop for a car.

Dealers: “Dealer financing” doesn’t mean you get a loan from the dealership itself. Dealers don’t lend money directly, but they do take applications to help you secure financing with a credit union, bank or other dealer-arranged lender (such as MINI Financial Services for MINI customers). Dealers typically build relationships with certain lenders, but you can still get financing through your own bank or credit union if you prefer. Tip: Be aware of the pitfalls of “buy here pay here” financing if you choose to go that route

Average interest rate for credit unions and banks

Customer Service

Credit Unions: Because they are member-owned and usually serve a certain community, customer service at credit unions tends to be more personalized. You’ll need to be a member of the credit union to apply for a loan, but it’s easy to become a member, and membership comes with numerous benefits including personal finance education (like five golden rules to buying a new car).

Banks: National banks typically have more physical locations than smaller community banks or credit unions. However, larger banks tend to have less of a one-on-one relationship with their customers.

Dealers: It’s convenient to have your financing arranged through the dealership, but dealers typically work with certain loan partners — and your credit union might not be on that list! If you prefer to work with a lender you already know and trust, consider applying for pre-approval at your credit union or bank before you shop. This way, the dealer knows upfront where you’re getting your financing.

The important thing to remember is that you have options when it comes to financing a new or used car. Choose the option that makes the most sense for your situation. Whether you go with a credit union, bank or dealer-arranged auto loan, it’s worth taking the time to shop around for what works the best for you in terms of interest rates, customer service and flexibility.

Apply for an auto loan with Desert Financial.



The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.