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 Minnesota, when financing a car purchase, consumers have the option to either secure a loan directly from a financial institution like 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. On the other hand, dealer-arranged financing involves the dealer acting as an intermediary between you and potential lenders. Dealers may negotiate a higher interest rate than what the bank offers and receive the difference as compensation. However, it's also possible for dealers to offer promotional financing with lower interest rates, especially for new car purchases, as an incentive. It's important for consumers to compare the total costs and terms of any financing option and to be aware of their rights under Minnesota's consumer protection laws, which aim to prevent deceptive practices in auto financing.