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How Do You Finance a Car Through a Financial Institution?

Whether you buy a new or used vehicle, you're likely to at least consider financing options as you start your buying journey. U.S. car buyers take out an average of 2.3 million auto loans each month to finance their vehicle purchase.

Before you can buy a vehicle through financing, you need to find a financial institution that will offer you a loan. You also need to do your homework and make sure you aren't overpaying on interest or other fees charged from the lender.

If you're determined to find a competitive interest rate and a low payment plan, experts recommend gathering rate quotes from multiple lenders and making sure the length of repayment and other financing terms are a good fit for what you're looking for.

With that in mind, here's a quick guide on how auto buyers can finance through a financial institution or dealership.

What Do I Need to Finance a Car?

How Do Auto Loans Work

If you're ready to start shopping for a vehicle—or if you've already found the vehicle you want, and now you need to secure financing to complete the purchase—you'll need to get pre-approved for financing and find out what kind of rates are being offered by lenders.

As you look ahead to financing a car, the process will likely require the following basic information:

• Proof of identity
• Proof of income
• Credit check authorization
• Existing vehicle information (if applicable)
• Recent bank statements and/or pay stubs

Each lender may have additional documentation and information collected for the purposes of pre-qualifying you for an auto loan, or for finalizing your financing package. Stay in touch with the lender to make sure you supply them with all the information they need.

Do I Need a Bank Account to Finance a Car?

While you might not technically need a bank account to finance a car, you could face a few different challenges if you don't have at least one bank account to your name.

First off, a lack of any existing bank accounts could be a red flag for lenders that want to see signs of responsible money management. If you don't have a bank account, they might worry that you aren't able to open an account, or that you've run into trouble with a bank in the past.

The lack of a bank account could restrict you from getting loans through certain financial institutions. Credit unions, for example, will only process auto loans for members or new members who qualify for membership. To become a member, you may need to open an account with that institution.

Lenders may also request recent bank statements as part of their approval process. A lack of a bank account could lead to some lenders denying you financing. Even in cases where you're able to get approved, you may pay a higher interest rate on that loan.

Can You Finance Through a Dealership?

Most dealerships offer on-site financing for auto buyers. But the rates offered by a dealership can vary. Some dealerships hope that consumers will opt for convenience over doing their research and finding the best deal on an auto loan.

Even if you're under pressure to take the financing offer and close the deal on a vehicle before someone else buys it, stay strong and insist on soliciting other financing offers—or, better yet, gather additional offers before visiting the dealership, so you can quickly compare offers and make an informed decision.

Should I Get a Car Loan From My Financial Institution?

If you're thinking about getting a car loan from your financial institution, it's always a good idea to at least get pre-authorized, which will quote you an interest rate for any proposed financing. While your financial institution may not offer the best deal, gathering rates from multiple lenders is a great way to shop loan offers and even negotiate a better one.

After you get pre-approved with your financial institution, it's worth soliciting another rate quote from a local credit union. As a not-for-profit organization, credit unions can often offer rates that beat your bank's financing terms, including the APR on the loan, which will save you money over the life of your loan repayment.

Ultimately, consumers should always choose the best interest rate and financing terms offered to them. But when you bring your existing offers to a credit union, you might be able to secure a better financing deal

While the auto financing process itself is fairly straightforward, buyers will be rewarded if they stay disciplined during the car-shopping process, and make sure they've vetted their options when choosing the best financing offer from multiple lenders.

 

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