When Low Rate Dealer Financing Is the Wrong Choice - OpenRoad Lending

When Low Rate Dealer Financing Is the Wrong Choice

When you buy a new car, you typically can finance it through the dealership or through a bank. Although the bank’s rate of interest may look higher, your total cost of financing – your annual percentage rate – may be lower. There are many online car loan solutions for you to consider. With most, you can apply and get a real time decision on what the financing will cost you. This gives you’re a base line to then negotiate better with the dealer.

Dealers often offer special incentive packages, giving buyers a choice between low-interest financing or a rebate. The dealer’s rate may be less than the rate charged at the bank or online lender, but your total cost of auto financing – and your monthly payment – may be lower when the rebate is considered. Optically it looks like, “wow, how can a rate 5x more than what the dealer is offering actually cost me less?” but the chart below illustrates the differences… you might be surprised.

The chart below shows different financing options as an example. The dealer is offering a choice between 0.9% financing for a limited term or gives you the option to take a $2,000 rebate. Here, the car’s purchase price is $18,000; after a 10 percent down payment, the loan from the dealer will be $16,200. A customer who takes the rebate and uses it to reduce the cost of the car will need to borrow only $14,200. Therefore, the monthly payment will be lower even if the interest rate is higher, so the bank financing would be the better deal.


Dealer Financing

Bank Financing
Annual Percentage Rate



Purchase Price



Less Down Payment



Less Manufacturer’s Rebate



Amount Financed



Monthly Payments (48 Months)




Because interest rates, car prices, and dealer incentives change all the time, you should use a car loan calculator to compare the different car financing options. This will help you determine which finance option is best for you.

Many lenders are now offering car financing options online to help the consumer through the process without having to hassle with finance office at a dealership. You have the luxury of applying from anywhere you gain internet access and in most cases, you can download your loan documents and complete the entire loan process in a matter of minutes. These lenders offer a variety of car loan options including new and used car financing, auto refinance loans where you can refinance an existing loan and lower those payments and some even offer finance plans to purchase a vehicle from a private party.

You owe it to yourself to do the research and find the best solution for your individual situation.