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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand.
The Benefits of Knowing Lending Rates Before Buying a Car
By Britt Erica Tunick
It seems that every time you turn around car dealers are having a sale, and almost all dealers offer in-house financing these days. But before you head out shopping for your next vehicle, the first stop you may want to make is at your bank.
While the ease of buying a car with on the spot financing is incredibly attractive, the reality is that such financing usually comes at a cost. In most cases, when a dealer offers financing for a car they are just serving as the middle man and the loan you are ultimately taking out is through a bank that the dealership has negotiated with in advance. Quite often, however, in exchange for the convenience they provide by arranging such financing in advance, many dealers will slightly increase the interest rate you will pay for a car loan from what they are paying the bank. Given this reality, stopping in at your bank to find out what kind of financing you can get before you begin shopping for a car can save you a significant amount of money in the end.
Even if the financing rate you can get through a dealer is identical to what you can get from your bank, you may still be better of choosing to finance through your bank. If the bank you borrow from is one where you have an existing relationship, there is a chance your bank will work with you should you run into difficulty repaying that loan down the road, whereas it is unlikely a dealer would do so.
Of course, there are exceptions. Since many car makers occasionally run 0% interest promotions, even if you’re able to pay for most a car on the spot you should consider taking advantage of such an offer because it is essentially the equivalent of free money, allowing you to put the money you have into an interest-bearing investment. But in most cases 0% financing is limited to the purchase of new cars. If you are instead shopping for a used or pre-owned certified car it is unlikely that you’ll be able to get 0% financing.
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