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 New Jersey, when financing a car purchase, you have two primary options: obtaining a loan from a bank or credit union, or opting for dealer-arranged financing. If you choose to get preapproved for a loan from a bank or credit union, you'll know the loan amount and interest rate in advance. This can provide a clear budget and potentially more negotiating power at the dealership. On the other hand, dealer-arranged financing might offer convenience, as dealerships can submit your application to multiple lenders. However, dealers may also mark up the interest rate above what the lender charges to compensate themselves, which could result in a higher cost for you. Conversely, dealerships sometimes offer promotional financing with lower interest rates than banks, particularly for new cars, as an incentive to purchase. It's important to compare the total costs and terms of any financing option and consider negotiating the terms of dealer-arranged financing just as you would the price of the car.