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 California, when financing a car purchase, consumers can choose between obtaining a loan from a bank or credit union or opting for dealer-arranged financing. If you go directly to a bank or credit union, you can get preapproved for a loan with a specified amount and interest rate, which can provide a clear budget before shopping for a car. On the other hand, dealer-arranged financing involves the dealership acting as an intermediary between you and potential lenders. Dealerships may negotiate a higher interest rate than what the bank offers and receive the difference as compensation. However, it's also possible for dealerships, especially when selling new cars, to offer promotional financing with lower interest rates than banks or credit unions as an incentive. It's important for consumers to compare the total costs and terms of any financing option and consider negotiating the terms of dealer-arranged financing just as they would with a bank loan.