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 Rhode Island, when purchasing a car, you have the option to finance the purchase either through direct lending or dealer-arranged financing. With direct lending, you approach a bank or credit union to get preapproved for a loan at a specific interest rate. This allows you to know the terms of your loan upfront before you go to the dealership. On the other hand, dealer-arranged financing involves the dealership acting as an intermediary between you and a lender. The dealership may offer you financing through their own network of banks and financial institutions. While sometimes dealerships can offer competitive or even lower interest rates for new cars as part of promotions or incentives, they may also mark up the interest rate above what you might qualify for directly with a lender. This markup serves as compensation to the dealership. It's important to compare the total costs and terms of any financing offer and consider negotiating the terms of dealer-arranged financing just as you would the price of the vehicle.