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 Massachusetts, when financing a car purchase, consumers have the option to either secure a loan directly from a bank or credit union or to opt for dealer-arranged financing. If you choose to get preapproved for a loan from a bank or credit union, you will know the loan amount and interest rate in advance. This can provide a clear budget and can be used as a negotiating tool at the dealership. On the other hand, dealer-arranged financing involves the dealership acting as an intermediary between you and potential lenders. While this can sometimes result in a more convenient and streamlined process, dealerships may add a markup to the interest rate offered by the lender as compensation for their services, potentially leading to a higher interest rate than what you might get directly from a bank. However, dealerships sometimes offer promotional financing rates, especially for new cars, which can be lower than those offered by banks or credit unions. It's important to compare the total costs and terms of any financing offers and consider negotiating the terms of dealer-arranged financing just as you would the price of the car.