Buying a car should be fun. But is the dealership the right place to finance?

How should you finance your car? Some people choose to do one-stop shopping and finance through the car dealership in addition to purchasing their car there. But should you? Here are the upsides, and downsides, of financing via your dealership.

How Dealer Financing Works
First of all, it’s important to grasp that your financing is probably not coming directly from the dealership itself. Most dealerships have an arrangement with automakers where they serve as the retail branch of their financial arms, and they may also have arrangements with other banks or companies. Your dealer collects your information, submits it to the company, and they come back with financing terms. Generally, the dealer has a fee called a “buy rate,” a payment or other financial arrangement made as part of helping you set up the loan. A dealer isn’t legally required to disclose this buy rate, which might be an extra percentage point or two of interest.

When you get pre-approved financing, you go to the financial institution, such as a bank or a credit union, directly, get a quote, work out the terms, and otherwise set things up according to their standards. Generally, you can find websites and other tools that will let you submit your data and get back pre-approved quotes you can compare for the best loan.

Should You Dealer Finance?
The biggest upside to financing through a dealership is convenience. If you want one-stop shopping, you can set everything up right there. For many, that’s got a strong appeal, and if you’re not terribly concerned about a dollar extra here and there on your payment, the convenience may be worth it. Don’t forget, though, that if you step onto the lot with pre-approved financing, that will cut out a lot of negotiation. Unless you’re working with a no-haggle dealership, that might be worth it as well.

Where should you buy your car’s financing?

And, regardless of your choice, it is worth speaking with the dealership and seeing what they can offer you. Before you set foot on the lot, call ahead and ask them which financial institutions they work with. The more they have to submit your data to, the better chance you have of getting a good deal.

Also, ask them about their buy rate and how it works on their end. Some dealerships simply receive a small part of your loan payment as their fee, and that’s built into any loan you get with no effect on your interest rate. Others may tack on a flat fee. Get a sense of the buy rate and how it’ll impact you, and if they don’t disclose the buy rate, that’s a sure sign you should get your financing elsewhere.

Finally, before you look at a car, get a basic idea of the overall range of interest rates, terms, and overall amount you can borrow on your credit. That will offer you a good point of comparison with dealership rates.

No matter what, remember to treat the car you buy and the car loan you buy it with as two separate products, and make a point of shopping around for both. Your wallet will thank you. If you’re looking for a new car, subscribe to get alerts on vehicles in your area.