The best option is to pay cash for your next car, but I realize that many people are not in a position to do that. According to Kelley Blue Book, the present average cost for a new vehicle in the United States is more than $37,000 (and this only includes so called 'light vehicles' and not trucks). Whether new or used, apurchasing a car is the second largest purchase most people make (after housing).
Where Should You Finance Your Car?
Most people get their financing at the dealership. The mistake here is not understanding that the largest profit center for an auto dealership is FINANCING, not the profit on the car!
4 Reasons Not To Finance A Car Through The Dealer
1. You can get a better interest rate through a credit union or local bank. A lower interest means lower payments (or less payments overall).
2. If you work out the financing in advance you will know exactly how much you can afford and will not have to make that decision in the heat of the moment.
3. With your own loan in place you can consider other options, such as buying a car in a private sale directly from an owner.
4. You can avoid meeting with the finance rep at the dealership and the sales pitch on credit life insurance, extended warranties, and GAP insurance (they still might take a run at you on some of this, but it will be easier to avoid the meeting altogether since you don't need the financing). You may still get pitched some of this at your bank or credit union, but more than likely with a whole lot less sales pressure.
Why You Should Not Tell The Dealer You Have Your Own Financing Until AFTER You Negotiate The Price
Since financing is the top profit center at most auto dealerships, you don't want to spill the beans on your financing plans until AFTER you have negotiated price. If the dealer knows that you have your own financing they will more than likely not be as flexible on the price (I know this goes against the common myth that cash buyers get the best deal).
There are always exceptions to every rule and that applies here as well. There might be some type of promotional financing that could be a better deal than your local credit union or bank, but that is generally not the case. Maybe the best reason of all to arrange your own financing is that it tends to slow down the buying process so you avoid making an emotional decision. That new car smell can be intoxicating!
Helping you make the most of God’s money!