Key takeaway
- A car is a large purchase and an auto loan stays with you for years, so make sure you maximize savings when you purchase a car.
- Putting down more cash or negotiating a lower overall price for your vehicle can help you save money over time.
- The key to negotiating on a dealership car loan is being willing to walk away when the numbers don’t work for your budget.
- Dealership loans don’t suit all borrowers, so consider other options if you can find a better deal with a different type of lender.
When you purchase a vehicle from a dealership, you can decide to get a loan directly from the dealer through their network of partnered financial institutions. Dealer financing can be convenient and may provide incentives you wouldn’t otherwise get. It’s a popular choice: Nearly one-third (30.9%) of financed vehicle purchases are financed through dealers, according to Q2 2024 data from Experian.
But because dealers often mark up their rates to make a profit, approach dealer-arranged financing carefully. The right strategy can ensure you get the best possible rates — even if it means walking away and getting a loan elsewhere.
4 ways to save on dealer-arranged financing
Shopping for a new car can be stressful, and having limited time to shop makes getting the best auto loan rates and terms harder. Fortunately, there are ways to save when financing your car through a dealership.
1. Up the down payment
Auto loans with low interest rates generally go to car shoppers with good or excellent credit. However, that is not the only way to get a good deal.
You can also offer a higher down payment to minimize the risk the lender will assume by financing the car for you. Average down payments were $6,619 for a new car and $4,165 for a used car in Q3 of 2024, according to data from Edmunds. But the larger the down payment you make, the lower your car loan’s monthly payment will be. Plus, you will save on interest over the life of the loan since you will be financing a lower amount.
Bankrate tip
Most experts recommend making a down payment of at least 20 percent. The higher the down payment you can afford, the less you will owe monthly and over time on the loan.
2. Shop the out-the-door price
Some car salespeople focus on the monthly payment instead of the purchase price when convincing eager shoppers to seal the deal. But here’s the problem: A low monthly payment likely means that you will get an extended loan term, and the lender will have several years to collect interest from you unless you pay the loan off early. So, you want to focus on the out-the-door price to avoid this.
3. Be prepared to walk away
Refusing to bend on your budget may make the dealership willing to negotiate a better deal with you. Even if you fall in love with a car, you must be willing to walk away if the numbers don’t quite work for you.
4. Use lender quotes to negotiate
If you were preapproved for an auto loan with a better rate through your bank, credit union or an online lender, the dealer might be willing to match it. And in some instances, they will offer you a slightly lower rate to earn your business.
When to skip dealership financing
Even if it is convenient, dealership financing isn’t always the best option. If you have bad credit or a high debt-to-income ratio, you’re likelier to get a lower interest rate with a credit union or bank than with dealer-arranged financing.
Or maybe you are at the dealership, and they cannot match your offer from an outside lender. In that case, it is also sensible to skip dealership financing to save money, even if the dealer offers a lower monthly payment. Remember, you will pay more interest if they stretch the loan over an extended period.
Another reason to look elsewhere for a loan is a pushy dealer. While they must make the sale and secure your financing to meet their goals, they should also be willing to give you a little time to get a rate quote from your bank. If they are unwilling to grant you this request, that’s your sign to move on.
Bottom line
A car purchase is a major investment, and you want to get the best deal on financing. Ideally, you want to get an auto loan with a low interest rate, minimal fees and a monthly payment that works for your budget, regardless of which route you take to get financing. Even with a dealership loan, you can save money with the right approach.
If you find a loan rate that is better than the financing you agreed to through the dealership, you may be able to refinance your loan through these other lenders. Just remember that most lenders won’t let you refinance with them until you’ve made at least six months of payments on your original loan.
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