Your personal bank verse car dealer financial institutions—which is the best approach when obtaining a loan for the purchase of a new vehicle? Auto dealers are positioned to be a one-stop shop, from search of the vehicle to securing a loan to handing you the keys as you drive off the lot. As easy as it sounds, are you actually spending more money on your new vehicle through this method?

According to one expert, the answer is yes. Auto dealers will always sell you on payments. The higher the payments the client is paying, the more money the dealership stands to make. Dealerships bump up the rate to the consumer on the payment, yet they receive a lower rate from the auto services departments of the different banks with which they work. Again, this is not going to be the best rate for the consumer because they are selling based on the payment, not the loan itself.

Obtaining your loan through your bank in advance of heading to the auto lot will position you as a stronger buyer, because you are negotiating with cash. Since you’ve already secured financing, you walk onto the lot with negotiating power, and this disarms the car dealer in their ability to make more money off your purchase.

There are several key factors to consider in helping you save money while obtaining a new auto loan, which include:

1. If you are pre-approved, this means you have decided in advance of your first test drive that you can afford the car. You may not have yet picked out the car, but you are already comfortable with the payments you will make and the overall dollar amount of the loan.
2. In working with your personal banker, you will always be dealing with a live person verse an 800 number and voice-activated system.
3. If you experience any problems with the loan, you can go directly to your private banker instead of an 800 number, where you will be a number and get lost in the bureaucracy of the financial institution.
4. Using your own bank will help you gain a better understanding of the loan because the bank will more clearly explain the terms so you know what are committing to. Your personal bank doesn’t just care about payments—their focus is on the loan itself.
5. In working with a bank in advance of visiting the auto dealer, you will not have the tendency to overspend. You’ve already decided in advance what you will do, so you won’t be likely to get in over your head. Driving off with the affordable Honda Accord verse the less affordable Lincoln Navigator will ease your mind and your pocketbook as you know in advance your payments and insurance costs.

Automobiles depreciate quickly, and the dealer will sell you on the length of the loan in addition to the finance payment to seemingly lower your payments. This means that by the time the car is paid off, your car is worth almost nothing, and may be in a position to either be replaced or in need of major repairs.

Financing before you shop positions you as a strong buyer, places you in the position of negotiating power, and enables you to buy the car you can realistically afford.