going directly to a car dealer for a Car loan to keep things simple is


Getting a Car Loan Directly from the Dealer – Keeping It Simple

When it comes time to finance a new or used car purchase, buyers have to make an important decision – should they get pre-approved for an auto loan through a bank or credit union, or go directly to the car dealer to arrange financing? While there are benefits to both options, getting a car loan directly from the selling dealer does have its advantages for simplicity.

In this article, we’ll look at the pros and cons of obtaining dealer financing for your next car and why this route may be the easiest option for many buyers.

Key Reasons to Get Your Car Loan Through the Dealer

Here are some of the major benefits of using dealer-arranged financing for your next auto purchase:

  • One-stop process – Apply, get approved, and complete all paperwork in one place. Avoid making multiple stops.
  • Easy application – Dealers can quickly pull your credit report and see loan options. No lengthy loan applications required.
  • Flexible terms – Dealers have relationships with many lenders and can shop for financing offers. This provides more flexibility than just using your own bank.
  • Negotiation advantage – Dealers may be willing to discount the purchase price further if they earn a portion of the loan interest.
  • Faster approvals – Dealers can often get nearly instant loan approvals from their lender partners. Much faster than applying through a credit union.
  • Extra perks – Dealers may be willing to throw in extras like free maintenance or aftermarket products if they arrange the financing.

For car buyers who value simplicity and convenience, going directly through the selling dealer for financing can make the entire purchase process smooth and seamless.

How Does Dealer Financing Work?

When you finance a car loan directly through the dealership, the process works like this:

  • You select the car you want and negotiate the purchase price.
  • The dealer runs your credit and shops rates from various lender partners they work with.
  • You review loan terms like APR, down payment, and monthly payment until you find one that fits your budget.
  • Loan documents are signed right at the dealership as part of the sales contract paperwork.
  • The dealer gets paid any agreed upon commission by their lender partner.
  • You drive away in your new car loan with payments made directly to the lender, not the dealer.

Dealer financing is convenient since you only have to go to one place instead of applying separately for financing.

Car Loan
How Does Dealer Financing Work?

What Interest Rates Can You Expect From Dealer Financing?

Interest rates from dealers are competitive, but usually not quite as low as the top rates from credit unions. Here are some examples of rate ranges:

New Car Loans: 3% – 8% APR
Used Car Loans: 4% – 12% APR

With excellent credit scores, rates under 5% are possible. Those with poor credit will pay higher rates. Be sure to negotiate the best rate available.

Should You Get Pre-Approved Before Going to the Dealer?

Getting pre-approved with your own bank is wise so you know estimated loan terms and have a backup financing option. This also shows the dealer you are serious.

However, final loan approval will still have to be done at the dealership in most cases. The pre-approval gives you a rate target to aim for in dealer financing talks.

Should You Get Pre-Approved Before Going To The Dealer?
Should You Get Pre-Approved Before Going to the Dealer?

How Much Do Dealers Make on Financing?

When dealers arrange financing, they receive a commission from their lender partners. This is called the finance reserve or spread. It’s typically 1% – 3% of the loan amount. On a $30,000 loan, a 2% reserve would earn the dealer $600.

Some buyers feel this dealer commission is an unreasonable upcharge. But for others, the simplicity of one-stop shopping outweighs the small dealer profit.

Should You Negotiate the Interest Rate with the Dealer?

Absolutely – you should try to negotiate the best interest rate and overall loan terms when going through dealer financing. While they will start by showing you an offer, you may be able to get a lower APR or better terms by asking. Dealers have some flexibility to mark rates down to win the sale.

Come armed with pre-approval terms and a target payment budget so you can zero in on the numbers you want. Be prepared to push back if the initial dealer financing offer doesn’t meet your needs.

Should You Negotiate The Interest Rate With The Dealer?
Should You Negotiate the Interest Rate with the Dealer?

Alternative Financing Options to Consider

While dealer financing can simplify the process, here are a few other options buyers may want to consider:

  • Credit union pre-approval – Very low rates are possible with excellent credit. May give you more negotiating power.
  • Bank pre-approval – Also offers low rates and a backup plan if dealer financing falls through.
  • Online lenders – Companies like Capital One, LendingTree, and Lightstream offer easy rate quotes.
  • Manufacturers’ financing – Low-interest incentive loans directly from car brands.
  • Personal loans – An alternative to auto loans from banks and credit unions.

Having backup financing options increases your leverage when working out terms with the dealer.

Pro Tip: Don’t Mention You Are Paying Cash Until You Have Negotiated the Out-the-Door Price

If you plan to pay cash for a car, don’t mention that fact upfront. Negotiate the purchase price first as if you will be financing. This gives you maximum negotiating leverage. Once you have the out-the-door price locked in, you can then say you’ll be paying cash. This prevents the dealer from inflating the price.

Is Dealer Financing the Right Move for You?

While dealer-arranged financing may not offer rock bottom rates, the convenience factor makes it worthwhile for many car buyers. Those who value a fast and easy purchase process can benefit from financing a car loan directly through the selling dealer.

Just be sure to negotiate for the most competitive interest rate and overall loan terms. Come armed with pre-approval terms and a realistic budget. With strong credit, you can likely get very reasonable dealer financing offers on par with banks and credit unions.

For buyers who want to minimize hassle and paperwork, financing a car loan at the same place you purchase it can be the simplest option. Just do your homework ahead of time so you don’t overpay.

Is Dealer Financing The Right Move For You?
Is Dealer Financing the Right Move for You?


  • One-stop process – Apply for financing and purchase the car loan in one place
  • Fast approvals – Dealers can often provide quick loan decisions
  • Flexible terms – Dealers work with multiple lenders so can offer varied loan terms
  • Negotiation advantage – Dealer may give a better price if they arrange financing
  • Extra perks – Dealers may bundle in extras like warranties with the loan


  • Higher interest rates – Dealer rates are usually higher than banks or credit unions
  • Prepayment penalties – Some dealer loans charge fees for early payoff
  • Pressure tactics – Dealers may push buyers into accepting higher rates or more add-ons
  • Credit impact – The hard dealer credit check can negatively affect your score
  • Contingent purchase – Dealer financing may require you to buy one of their vehicles
  • Lack of portability – Loans are tied to that specific dealer purchase
  • Loan packing – Dealers may tack on unnecessary extra products and fees
  • So in summary, dealer financing trades lower costs for the convenience and speed of doing everything in one place. Shop around for better rates, but dealer financing can simplify the process.


Q: Is dealer financing always more expensive?

A: Not necessarily. With good credit, it’s possible to get competitive rates under 5% at many dealerships. But rates are usually a bit higher than direct bank financing.

Q: Can I negotiate the interest rate if I use dealer financing?

A: Yes, you should always negotiate with the dealer to ask for a lower interest rate or better loan terms. Don’t just accept their first offer.

Q: What credit score do I need for dealer financing?

A: Most dealers require a minimum credit score around 600-650 for loan approval. Those with scores of 700+ will qualify for the best rates under 5%.

Q: Is dealer financing faster than a credit union?

A: Usually yes. Dealers can often provide same-day loan approvals through their lending partners. Credit union approvals may take several days.

Q: Can I pay off a dealer financed loan early?

A: You can, but check your loan contract first. Some dealer loans have prepayment penalties if you pay off the balance early.


Getting your car loan directly from the dealership provides a convenient one-stop financing and purchase process. However, it pays to shop around with banks and credit unions first to compare interest rates. Come armed with pre-approvals and remain firm on negotiating the best possible dealer financing terms. While not always the cheapest option, dealer-arranged financing can streamline the car buying experience for buyers who prioritize speed and simplicity. Just avoid high-pressure sales tactics and unnecessary add-ons to keep costs down.

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