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 South Carolina, when purchasing a car, you have the option to finance the purchase either through direct lending or dealer-arranged financing. With direct lending, you obtain a preapproved loan from your bank or credit union, which comes with a specified amount and interest rate. This allows you to know the terms of your loan before you shop for a car. On the other hand, dealer-arranged financing involves applying for a loan through the dealership. The dealer may have relationships with various lenders and can arrange financing for you. However, the dealer may also mark up the interest rate above what the lender charges and keep the difference as compensation. This could result in a higher interest rate than what you might get from a bank or credit union. Conversely, 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 offer and consider negotiating the terms of dealer-arranged financing just as you would the price of the vehicle.