Car Financing
 

Assuming excellent credit score and history, what is the best route to obtain financing for vehicle purchase?

Would banks tend to offer lower interest rate compared to dealers?

Manufacturer usually give the best finance rate.

.....and they also tend to give the best cash rate too.
Often times $x000 off if you're doing cash, especially at end of the year.

You got to work out the math to see if it's worth getting a slightly higher rate from the bank to offset the cash saving from dealer.

Agree 100%.

The math you need to do is not comparing the interest rate between the bank and the dealer, but rather the bank's rate and the cash discount to see what is a better deal.

Example: $50,000 car (5 years, monthly payments, 0 down, no taxes for simplicity). Dealer offers you two choices... 2.9% financing, or a $2,500 discount if you pay cash. Your bank also offers to loan you the money but they will charge you 4.9%.

If you finance through the dealer, you borrow $50,000 at 2.9%, you make 60 payments of $896.21 which means at the end of the day, you pay $53,772.86 for the car including your interest.

If you buy it from the dealer cash and finance through the bank, you only pay $47,500 for the car, and you borrow that $47,500 from the bank at 4.9%. You end up paying the bank 60 payments of $894.21 which means you actually only pay $53,652.54 for the car. You paid more interest, but the discount on the car actually made it cheaper overall.

Hope that helps,
Mark

also often if you dont qualify for manufacturer financing, each dealer often works with their own lender or bank institution that can help get the finance. say you went to ABC Bank and asked for a loan, or the dealer used the same ABC Bank but asked on your behalf, often you'll get a slightly better rate due to the deals they have between the bank/dealership

Best deal out there is to wait for the manufacturer to come out with 0% financing if that manufacturer does this promotion. In all honesty month to month they move money around to incent different buyers but in the end game it all ends up being "about" the same.

The dealer does not have its own bank but they are actually buying that 0% off a credit company. The cash incentive is there to make up the money they have used to make the 0% happen.

Picture this. Each dealer will have 'x' amount of money they are able to play with in a pot and use to incent buyers and each month they just move it around. One month they might use that money to attract finance buyers so they put their money towards 0% and depending on the manufacturer there might also be a small delivery allowance or dealer incentive to go with it and a cash incentive to offset the interest charge. This is the best time if you plan on financing. Now later in the year "or currently" dealers will come out with year end blowout, invoice pricing, etc. Here you will see huge discounts and also very large delivery allowances or dealer cash incentives but at the same time because of this they will increase the interest rate. This is typically the best time for a cash buyer.

Time for an example. I will use a 2016 Mustang EcoBoost with a MSRP of $38,498. Last month Ford had 0% financing on all 2016 Mustangs up to 72 months with a June bonus of $750 taking the price down to $37,748 and giving you a monthly payment of $587mo.

Now this month same car but with current promotions the price is discounted a huge $5,795 down to $32,703 which is a banging deal for a cash buyer but the interest rate has been bumped up to 4.89% giving you a payment of $588mo. Weird how it turns out to the same right? Now as a person financing you will want to take the 0% because every payment goes to the principle. Im not saying this is the case for everything because it is not but this is a great example of how dealers move money around to incent different buyers with it being the same deal in the end for them.