Should I Finance My Car With a Dealer or Banking Institution?

Should I Finance My Car With a Dealer or Banking Institution?

June 27, 2018    Financing & Leasing

Car loans are not always easy to get when you have a low credit score. Your options may be limited if you have less-than-perfect credit or no credit history. However, it’s not impossible and shouldn’t be overly complicated to go through the application process for auto financing.

There are several options available when you’re looking for financing, including traditional lenders, banking institutions, and dealership credit groups. The latter offers in-house financing, which mean dealerships lend their own money towards their vehicles on-site. To determine whether to seek a loan from a banking institution or through in-house financing at a dealership depends on your financial circumstances.
To make an educated decision between these two options, it’s important to see how your choice of lender will impact your financial situation and credit score long term.

Can you get bank financing with bad credit?

It depends. Banking institutions, which are the more traditional lenders, include banks and credit unions. You may be able to get a loan with a banking institution if you have a decent credit score and are a current customer. If you are able to get a loan, you’ll need to get a pre-approval letter to bring to the dealership. The pre-approval states the maximum you can borrow, in turn determining what kind of car you can finance. Interest rates on loans from traditional lenders are typically non-negotiable, and banking institutions won’t offer different options.
It can be tricky to get a loan from a banking institution with a low or bad credit score, especially if you’re not an existing customer. You might not be able to borrow as much as you had in mind or might not get approved for a loan at all.
If you have bad credit and choose to seek financing from a banking institution – tread with caution. If you apply at numerous banks or credit unions, it can actually harm your credit score. You have a 14-day window to apply for loans otherwise it shows up on your credit history as more than one inquiry or application. When your credit history has multiple loan applications on it, not only does your credit rating plummet, it may be a red flag for lenders in the future.

Is it better to finance my car through a dealership?

It also depends. If your credit score is less-than-perfect, dealership financing may be the option for you. When you’re looking to get financing from a dealership, you can compare offers, and interest rates are not necessarily set in stone. First and foremost, it’s important when choosing a dealership financial group to know about the lender’s history and reputation. 
Unlike traditional banking institutions, dealership financial groups can check your credit record and see what loans you’re eligible for. The process at Birchwood Credit Solutions involves sitting down to go through your credit record and discuss your current financial situation as well as other factors, like how long you’ve been employed at your current job, how long you’ve had your mortgage and more.
The process is slightly different and a bit more in-depth if you have a low credit score, but it should never be stressful or overwhelming. Typically a dealership can let you know your options within a few hours. Banks and credit unions usually take a few days to a week to let you know how much or if you’re approved for a loan. By the time you hear back from a banking institution, the car you want might already be long off the lot.
Opting for in-house financing with a dealership can be a good option if your credit is less than perfect. There are two things to look into when deciding on this route. First, you’ll want to check the interest rate on financing. Most dealership lenders, especially larger well-established ones, are able to offer competitive rates close to those of banking institutions. Second, check if there are high origination fees — a fee that’s charged to cover the cost of processing your loan — or any penalties for paying off your loan before your term is up.


If your credit score isn’t optimal for getting a car loan from a banking institution or you want to explore your financing options, visit us at Birchwood Credit Solutions. We specialize in helping people who may typically get denied by traditional lenders. A reliable car is important for getting you to work, transporting your family, and general ease of everyday life. To get started, check out our car loan calculator to get an idea of just how within reach a Birchwood vehicle can be!

Related blog posts:

Rebecca Lake
Written by

Free Buyers' Guide

Download our New to Canada Guide

Download Now
Free Buyers' Guide