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 Washington State, when financing a car purchase, consumers have the option to either obtain a preapproved loan from a bank or credit union or to opt for dealer-arranged financing. If a consumer chooses to get preapproved, they will know the loan amount and interest rate beforehand. This can provide leverage in negotiating the price of the vehicle and can simplify the buying process. On the other hand, dealer-arranged financing may offer convenience, as dealerships can submit credit applications to multiple lenders on the buyer's behalf. However, the dealership may negotiate a higher interest rate than what the lender charges and keep the difference as compensation, which could result in the consumer paying more over the life of the loan. Conversely, dealerships sometimes offer promotional financing with lower interest rates than banks or credit unions, particularly for new car purchases, as an incentive to buy. 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.