While it may be convenient to take an auto loan from the same bank or credit union where you have other financial services, this isn’t always the best choice. In fact, there are several reasons why you should consider taking a car loan outside of your banking institution – in fact, you can normally find the best car finance through an online lender. Here’s a look at some of the pros and cons of financing a car loan through your bank or a lender, as well as some reasons why you might want to do it another way.
Pros of getting a car loan
You don’t need to have saved up all (or any) of the car’s purchase price
Though some banks and other lenders will not approve you for a car loan unless you have at least 20 percent of the total purchase price in cash, some won’t require you to put down any deposit at all.In some cases, the vehicle’s value isn’t even a factor. This can be helpful if you don’t have a lot of money saved up for a car, but still want to get one quickly.
You can buy a more expensive car
When you finance through your bank or credit union, you may have to limit the price of the vehicle that you want. But if you go for an auto loan with another lender, it’s possible to get approved for financing on a car with a higher purchase price. This is ideal if you’re looking to buy a more expensive car or a luxury vehicle, and if you don’t have a large deposit saved up.
You can spread out the payments over a longer period of time
In many cases, if you finance your car through your bank or credit union, you’ll have to pay off the entire loan within three years. This will add up to high monthly payments, which may not be ideal if you live on a budget. By contrast, some lenders will allow you to finance for up to seven years or even longer. This can be very helpful if you don’t have a lot of money saved up or are worried that your car-related expenses might exceed your monthly income.
Cons of getting a car loan
You may pay higher interest rates and fees
Though some banks and credit unions will give you a loan for relatively little money, other lenders can charge much higher interest rates. You’ll also typically have to pay additional fees and insurance costs with these types of loans. If you want to keep your monthly car payment as low as possible, borrowing from a bank or credit union may not be a good option.
You may have to re-establish your credit
If you take out an auto loan with your bank or credit union, it will usually appear on your credit report as a “trade line.” This means that if you default on payments, you’ll hurt your ability to get other loans in the future. In contrast, if you finance the car through a different lender, it won’t likely affect your credit score at all. While you might want to show that you have a good history of repaying debts by going with a bank or credit union, getting a loan from an outside source could be better in the long-term.