Auto Financing with a Credit Union vs. a Dealership

Tuesday, January 29th, 2019
Credit Union or Dealership Financing

Buying a car is a big deal.

It’s exciting, but it’s also expensive and exhausting. Think about it: after prowling the car lots, test driving, and navigating the sea of eager salesmen, you still have one more hurdle before getting the keys….financing.

Will you finance a loan through a credit union or dealership? Do you know how each option stacks up against the other?

There are a slew of reasons why you should opt for taking out an auto loan through a credit union, such as lower interest rates, personalized service, and an agreeable loan process. But here’s what you need to know when deciding whether to finance your car loan through a credit union or dealership.

That dealership “bargain” isn’t as good as it seems

is it better to finance through a credit union or dealership

If you’ve decided on a car from a dealership, you will likely be offered an “unbeatable deal” or sizable discount in exchange for financing through them instead. The problem is that this “bargain” is usually not the better deal for you when compared to longer term savings in rate.

A dealership’s finance rate is usually higher than what you qualify for based on your credit score. For example, you may be given a 6.9% rate with an offer of $1500 knocked off the price if you finance through them. However, at a credit union, you could qualify for as much as 3% less for a 60-month loan. With that, you end up paying more if you opt for dealer financing, even with that sizable discount!

Dealerships make commissions, credit unions don’t

Most of the time, dealerships are the ‘middleman’. If they can broker a deal between you and a lender, then they get a cut from the lender. As a result, they can be quite motivated to talk you into signing a loan that may not be fiscally smart for you.

Cut out the middleman! Get pre-approved for an auto loan through your credit union! When you walk onto a dealership lot with financing already in hand, you are an empowered consumer. You’ll know your price range and won’t have to worry about hidden fees or skyrocketing interest rates.

Credit unions have incredible rates and benefits

Happy Couple Near New Car

A dealership is not a federally-insured financial institution. They are a business and you are a buyer! It is in their best interest to get your dollar. Conversely, if you are a member of a credit union, you are not just a customer–you’re an owner. When you open an account, you become a shareholder. As a result, credit unions don’t have to pay any third-party investors and are non-profit. All of these factors mean that it is in their best interest to make sure that you get the benefit of any financial services you use.

One of these benefits is that credit unions have low rates on auto loans. Even lower than banks or any other sources. You won’t see those kind of rates at a dealership, because they simply aren’t structured in any other manner than to generate top dollar sales.

Other credit union benefits include optional plans such as GAP insurance, credit life and disability insurance, and extended warranties. Although dealers offer most of these plans, it’s best to compare plans and prices before your purchase. Checking with the credit union first could save you money on these products, and put you in a better financial position.

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