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 Iowa, 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 financial institution like a bank or credit union, you can get preapproved for a loan with a specified amount and interest rate. This option allows you to know your terms in advance and potentially negotiate a better price with the dealer. On the other hand, dealer-arranged financing involves the dealer acting as an intermediary between you and a lender. Dealers may have the flexibility to offer competitive interest rates, especially for new cars, which can sometimes be lower than those offered by banks or credit unions. However, dealers might also increase the interest rate above what the lender requires and keep the difference as compensation. It's important for consumers to compare the total costs and terms of any financing offer and consider the long-term financial implications before making a decision.