If you are buying a car and want to borrow the money to pay for it, you have the options of (1) going directly to your bank or credit union and getting preapproved for a loan in a certain amount and with a certain interest rate, or (2) going to the car dealership and inquiring about dealer-arranged financing. One difference in these options is that with dealer-arranged financing the dealer may negotiate a higher interest rate with you than the bank offers, and take the additional money you pay in interest as compensation for the dealership. But if you are purchasing a new car, the car dealer may offer you lower interest rates than your bank or credit union.

In Alabama, when purchasing a car, you have the option to secure financing through a bank or credit union or to opt for dealer-arranged financing. If you choose to get preapproved for a loan from your bank or credit union, you will know the loan amount and interest rate in advance. This can provide a clear budget when shopping for a vehicle and may offer more competitive interest rates. On the other hand, dealer-arranged financing can be convenient as it allows you to arrange the purchase and financing in one place. However, dealerships may negotiate higher interest rates than what you might receive from a bank or credit union, potentially earning the dealership a commission from the financing. It's important to note that dealerships sometimes offer promotional financing rates, especially for new cars, which can be lower than those offered by banks or credit unions. It's advisable to compare the terms and total costs of financing options and consider consulting with an attorney or financial advisor to understand the implications of each choice.