Although it might be more comfortable to take out an auto loan from the bank or credit union where you have other accounts, that isn’t necessarily the smartest choice. In fact, there are numerous reasons why you should look into how financing a car works through another lender – in many cases, you can get a better rate through an online provider. Here’s a breakdown of some of the advantages and disadvantages of taking out a car loan through your bank as opposed to another institution, as well as some circumstances when it could make sense to go with another option.
The advantages of taking out a car loan
You don’t have to have saved up the whole (or any) purchase price of the automobile.
Some lenders will not approve you for a vehicle loan unless you have at least 20% of the total purchase price in cash, while others will not require any down payment. In some cases, the value of the car isn’t even considered. This can be beneficial if you don’t have much money set aside for an automobile but still want to acquire one fast. You can use a car finance calculator here to figure out how much money you can afford to borrow for a new ride.
You can invest in a more expensive automobile if you wish.
When you finance a Car through your bank or credit union, you may be required to set a price on the car you want. However, if you apply for an auto loan with another lender, you could be approved for financing on a car with a higher purchase price. This is perfect if you want to buy a more expensive automobile or a luxury vehicle without having a large deposit saved up.
The following are the disadvantages of taking out a vehicle loan.
If you choose this option, be aware that you may end up paying higher interest rates and fees.
There are several car loans available to individuals, but not all of them can be obtained through traditional lenders. Some banks and credit unions will provide you with a loan for relatively little money, while other lenders may charge considerably higher interest rates. These sorts of loans usually come with extra charges and insurance expenses. If you want to keep your monthly automobile payment as low as feasible, borrowing from a bank or credit union might not be the best option.
You may have to re-establish your credit
When you finance a car, the trade lines on your credit report usually come from auto loans through banks or credit unions. If you default on payments, your ability to get future loans will suffer; however, if you choose another lender, it likely won’t affect your credit score. Going with a bank or credit union might show that you have good history of repaying debts; but in the long-term, an outside source could be better.