A variety of lenders finance car purchases. Depending on your credit and whether you purchase a new or used car, you may benefit from pursuing a loan that targets your type of purchase and credit history. To determine where to apply for your loan, consider the different types of lenders available and which best suits your needs.
Manufacturer Financing
Manufacturer banks may offer a lower rate than traditional lenders if you purchase a new car, sometimes as low as zero percent. You can find rate incentives and term requirements advertised at the manufacturer website. Low rates are usually available in lieu of available rebates. Manufacturer banks include lenders such as Volkswagen credit for Volkswagen, BMW Financial Services for BMW or Mazda American Credit for Mazda vehicles. While these banks also offer financing for used cars, rates are not often as competitive as local lenders.
Traditional Financing
Traditional financing includes lenders such as local credit unions or national banks with local presence, such as HSBC, Chase or Wells Fargo. Traditional lenders often compete with one another, but may have different lending requirements or restrictions. Most loans are offered for a period of 24 to 72 months, but some banks may offer a longer term. New car interest rates are often advertised on bank websites; you may have to call the lender to obtain used car rate information. Using a local bank for your loan may offer additional incentives, such as a rate discount for maintaining a checking account.
Subprime Financing
Subprime lenders offer loans to buyers with poor credit. Subprime banks do not offer competitive rates or terms, as this type of lender is often a last resort for poor credit borrowers. You may have subprime lenders in your area but can apply to national based lenders without local presence, such as Road Loans, Capital One Finance or AmeriCredit. Rates for subprime loans can be as high as 29 percent, depending on your state's maximum allowed rate. Approval terms are often shorter and down payment requirements usually higher than other lenders, which can significantly increase your monthly car payment.
Dealership Financing
Large dealerships offer a variety of lending options. Dealers use the same banks you can find on your own. Dealerships can submit your credit application electronically to a variety of banks quickly. Many dealers also work with local credit unions. Depending on the bank the dealer uses, it may allow the dealer to increase your interest rate by as much as 3 percent for dealer profit. You can negotiate your interest rate with a dealer. Dealers also handle and submit all bank contracts, allowing you to complete your car purchase in one place.
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