Bank loans are the most common way to finance a car. The process is relatively straightforward, and the APR is usually reasonable. A bank loan is a secured loan meaning that you will be putting the car itself up for collateral.
In recent days, banks have become a little more reserved as to who they will offer a loan. This means that in order to get a bank loan, you will need a good to very good credit rating.
Acquiring a loan from a bank offers several advantages. A bank loan is usually structured as a pre-approval. This can be a great advantage as you will know how much you can spend before you walk onto the car lot. You will also know up front what your interest rate will be, and will have a clearer idea of the terms and conditions of a loan.
In many cases, banks offer lower rates of interest than many other lending options, especially if you already have a relationship with the bank through other loans or checking and savings accounts.
Dealing directly with the bank allows you to shop around for the best rate.
If you deal with the bank, there will be no surprises. As the bank will examine your credit history Before creating a loan, dealerships often sell you the car first and then manipulate the loan offer that best suits them and not you.
There is also a loan type known as a blank check loan. This loan type lets you skip the final approval process and write a check to the dealer as though you were paying cash.
The Not So Good
However, bank loans are not necessarily the be-all-end-all when it comes to financing a car. If you arrange pre-approval from a bank, you will not be able to take advantage of any offers of special rebates or interest rates offered by the manufacturer or dealer.
A bank loan is also a bit more inconvenient to acquire as it requires the extra step of visiting the bank. It may be worth it if you can secure a better rate but if you head straight to the dealership, it's a one-stop shop.
Getting a bank loan also limits you to one interest rate and one payment option. Often dealerships have a variety of packages that allow for flexibility as to how you structure your loan.
Do Some Homework to Get the Best Deal
Because an individual bank will only have one type of car loan to offer, it is important that you visit as many banks as you can. Start with your current bank and then visit a few more that are convenient to you.
For real convenience, you can shop for auto loans online. It is possible with online shopping that you can apply with a third party, and competing banks will be making you offers instead of you having to search several sources to find the best deal.