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 Colorado, when purchasing a car, you have the option to finance the purchase either through direct lending or dealer-arranged financing. With direct lending, you can get preapproved for a car loan from a bank or credit union, which allows you to know the loan amount and interest rate before you shop for a car. This option often provides transparency and the ability to shop around for the best loan terms. On the other hand, dealer-arranged financing means that you obtain financing through the dealership. The dealer may work with multiple lenders to find a loan, but they may also mark up the interest rate to gain additional compensation. While this can sometimes result in higher interest rates compared to direct lending, dealerships may also offer promotional financing, especially for new cars, which can include lower interest rates than those offered by banks or credit unions. It's important for consumers to compare the total costs and terms of any financing offer and consider negotiating the terms of dealer-arranged financing just as they would the price of the car.