With bank or credit union financing, often called “direct auto lending”, you go directly to a bank or credit union and apply for a loan. You can get an interest rate quote or a conditional commitment letter from the bank or credit union before you go to the dealership to buy a car. The bank or credit union offers certain terms, and those terms are negotiable.

In dealer-arranged financing, often called “indirect lending,” the dealer initially makes the loan and then immediately sells the loan to a bank, credit union, or other finance company that has approved your credit before the dealer made your loan. In this situation, the dealer may be able to increase the interest rate above what you have qualified for before offering you the loan. 

TIP: In general, dealers and lenders are not required to offer the best rates available. You can save money over the life of the loan by negotiating for the best interest rate available to you.

TIP: In both dealer-arranged financing and bank financing, you should know that your interest rate is negotiable, so you should get quotes from multiple lenders to compare offers. Just like the price you pay for the car is negotiable, so is the interest rate.