What are the Major Pros and Cons of Auto Loans?

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When you’re looking for an auto loan, there’ll be all kinds of options for where you can get it from. Dealerships, banks and more can all make you offers on loans, all offering their own pros and cons. So which one is the best one to choose? The answer will vary from person to person, but we here at LoanMart hope to make your decision easier by listing the different pros and cons of auto loans from all kinds of lenders.

The Pros and Cons of Dealerships

Dealerships are middlemen between the customers and the automaker themselves, and as such, will usually try and find a middle ground that satisfies their parent company as well as the customer. As a result, dealerships will have some specialized pros and cons when it comes to choosing them over the other options.

Dealership pros include:

  • Convenience – If you’re buying a car, chances are you’re at the dealer to begin with. Doing the loan deal there just makes it even more convenient.
  • Lower credit opportunities – Dealerships often can offer loans to a much wider range of credit scores than most other lenders. Be wary on this though, as you’ll see when we get to their cons.
  • Subsidized financing – Because you’re doing the closest thing to dealing directly with the automaker, if you have good credit chances are your interest rates will be much lower than other options.

It’s not all sunshine and rainbows when it comes to dealerships though. Dealership cons include:

  • Interest rate markups – Interest rates for dealership loans can be marked up a bit more than usual, with the dealer profiting from the difference.
  • Low Credit, High APR – Even though dealerships can offer loans to those with lower credit scores who wouldn’t otherwise get a loan, those loans come with much higher APR scores, so be wary of that if your credit score is poor.
  • No stacking discounts – At other lenders, discounts like a rebate and low interest rate can stack, but at dealerships you’re only able to pick one.

The Pros and Cons of Banks

Banks offer loans much like dealerships, and their offers have their own pros and cons just like any other potential lender. Banks sometimes even offer their loan options online for viewing, but the best offers and clearest terms usually only happen when you’re there in person.

Bank pros include:

  • High-end security – Banks have the highest levels of security of all the different lender options, ensuring that your data will be safe.
  • Competitive rates – If you qualify for a loan with them, they’ll likely match the rates of other lenders.
  • Personal connection – if the bank you’re going to is a local one, then the lender there will likely have a closer connection to the borrower, and may be able to help them in a more personalized matter.

As with dealerships, there’s downsides to going to banks as well. Bank cons include:

  • Restrictive on offerings – Banks are usually much more restrictive about who they offer loans to, so people with lower credit scores usually get turned away.
  • Higher fees – the fees for the loans they offer usually are higher than other lenders

The Pros and Cons of Online Lenders

Online lenders are another option to choose from when it comes to getting a loan. These lenders exist through a variety of different lending-centric websites, and make a business out of having shifting, constantly competitive rates. Before deciding on an online lender though, make sure to confirm that they’re a legitimate business. Online lenders can end up being frauds designed to steal your money, so make sure the lender you’re looking at is legit.

Online lender pros include:

  • Damage-free applications – You can apply to multiple online lenders without harming your credit score, something that will happen if you apply to multiple in-person lenders
  • Increased competition – Online lenders’ rates are more volatile than most other lenders, meaning, if your timing is right, you could net a rock-bottom interest rate.

Online lender cons include:

  • Impersonal nature – The online nature of these lenders means that a personal connection is rather difficult. This means getting help or controlling your personal info makes is difficult when dealing with these types of lenders.
  • Spam – These websites often require your email to sign up, and once they get it, your email inbox will be peppered with ads. If they require your phone number, the same thing will be true of your phone.
  • Volatility – Just as the competition can create lower interest rates, the ever-changing nature of the online rates can mean that the rates will be higher than usual.

The Pros and Cons of Credit Unions

Credit unions are nonprofit versions of banks, owned by the members that make up the union. In turn, the only people that credit unions will lend money out to are members of the credit union, meaning it’s off-limits to most of the population. There are a scant few credit unions that do offer loans to those outside of the union, which can be found online.

The pros of credit unions include:

  • Lower interest rates – Loans through credit unions are usually lower than some other lenders.
  • Personalization – Because the credit unions are owned and run by the members of the union, the care and application process are much easier and friendlier.

The cons of credit unions include:

  • Members-only – As mentioned before, many credit unions are exclusive to only the members within.
  • Substandard online presence – Unlike most of the other options, credit unions usually have very little online presence is they have any at all.

As you can see from all of these different lists, each option for loans has different benefits, but each has their own drawbacks as well. When you’re going to get an auto loan for yourself, you need to take all of these pros and cons into account. After you’ve considered all the different options and accounted for your own circumstances, hopefully the best choice for you is clear.

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California loans are made or arranged pursuant to a California Financing Law License. See State Disclosures for additional disclosures.

1Loan approval is subject to meeting the lenders credit criteria, which may include providing acceptable property as collateral. Actual loan amount, term, and Annual Percentage Rate of the loan that a consumer qualifies for may vary by consumer. Loan proceeds are intended primarily for personal, family and household purposes. Minimum loan amounts vary by state. Consumers need to demonstrate ability to repay the loan.

2Based on consumers who received a loan from LoanMart from February 2002 to October 2018.

3Application processes could take five (5) minutes to complete. Upon completion, a conditional approval may be given pending review of documentation. Funding time is based on the time from final approval following receipt and review of all required documents and signing, prior to 2PM PST on a business day.

4To exercise the right to rescind, the consumer(s) must notify the lender in writing by midnight on the third calendar day from obtaining the loan. Within one business day from notice of rescission, the consumer(s) must return any monies received and fees paid on behalf of the consumer(s) by certified funds.

5Lenders recommend and encourage consumers to pay early and often and more in order to avoid additional finance charges.

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†All loan applications are subject to meeting Capital Community Bank’s credit criteria, which include providing acceptable property as collateral. Consumers need to demonstrate ability to repay the loan.

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