Bankrate loans editor Katie Lowery recently bought a car. Despite working in finance for 11 years, the experience was a new one for her. For one thing, this was her first time financing a brand-new car. It was also her first time financing a vehicle for over $10,000.
While Lowery has been a devoted fan of credit union financing for years, she reports that she had a great experience with manufacturer financing and would consider it again in the future.
“I was credit unions all the way,” she says, explaining that two of her previous cars had been financed through her local credit union. The other she had paid cash for privately.
This time, Lowery opted for manufacturer financing — and she shared the following tips for getting the most out of it.
What is manufacturer financing?
Manufacturer financing is when you get an auto loan from a manufacturer’s captive financing arm — think Toyota Financial. This type of dealership financing often comes with special rates for well-qualified borrowers.
Research what you want and what it costs
Lowery knew what she needed in a vehicle. With two kids and athletic equipment to ferry around, she had to have legroom and storage. She also needed space to work from her vehicle when necessary.
She also knew what she wanted. Since this was going to be her first time buying a new vehicle, and it would be the family’s primary car, she decided to splurge on all the bells and whistles.
“I knew the auto loan landscape, what I could and couldn’t afford and what monthly payment I could afford,” Lowery explains. She planned her purchase for months, and once she decided on a vehicle, she used an app to compare and track prices until she was ready to buy.
The sale moved much faster than she expected. She arrived at the lot for a test drive, but a few hours later, the deal was done. She credits that to her time spent researching: “Knowing so much going in gave me confidence I wouldn’t have buyer’s remorse.”
Take time to review your budget and calculate how much car you can afford. You should look at the total cost of your vehicle as well as your monthly payment. Bankrate’s auto loan calculator allows you to enter different rates and terms to see how altering the terms of your loan will affect its cost.
Prioritize your down payment
Most experts advise consumers to put 20 percent down on a vehicle purchase. In the case of manufacturer finance, it may be mandatory. Even if it’s not, a down payment reduces the amount consumers have to finance, often leading to a lower loan rate and smaller monthly payments.
“Lenders were requiring record amounts of down payments in recent years. And they’ve come down a little bit on that, not to a degree that is, you know, an indication of they’re getting [less] aggressive.”
— Jonathan Smoke, Chief Economist for Cox Automotive
That was the case for Lowery , who chose to put down $30,000 in cash and trade-in value toward the $60,000 Honda Pilot she wanted. The dealership responded with two offers: 1.99 percent for 36 months, or 2.99 percent for 60 months. Although experts often recommend choosing the shorter term to reduce your interest costs, Lowery went with the longer term at a slightly higher rate because the flexibility in monthly payment was worth the slightly higher interest rate.
| APR | Loan term | Monthly payment | Total interest paid |
| 1.99% | 36 months | $859 | $929 |
| 2.99% | 60 months | $539 | $2,336 |
“Before signing anything, though, I confirmed that the loan does not have a prepayment penalty.” Lowery adds, “I took the longer term with the plan to pay down the loan [as] early as I’m able.”
By paying off the loan early, she will be able to avoid the extra interest of a longer loan term, but she has room in her budget if she needs to switch to minimum payments. Her $539 monthly payment is still lower than the average auto loan payment for a new car, which was $724 in the fourth quarter of 2024, according to Experian. In fact, it’s just over the average monthly payment for a used car, which sat at $525 during the same period.
I definitely think that my ability to offer such a big down payment impacted my experience. Whether this was true or not, I felt like it put me in a stronger negotiating position. The dealership also seemed to take me more seriously when I mentioned the size of our down payment.
— Katie Lowery, Bankrate Editor, Loans
Know who you’re working with
It’s important to research the vehicle you want, current rates and potential lenders before you pick a car or take a test drive. You should also research the dealerships in your area. Dealerships tend to have their own contracts with car manufacturers, which can affect prices on new models. They also set their own markups and incentives for the vehicles on their lots, meaning the difference in cost from one dealership to another can be substantial.
Where to find manufacturer financing
Manufacturer financing deals are offered through captive lenders. Both authorized and franchised dealerships may have manufacturer financing, so ask about your financing options before you schedule a test drive.
Even if a dealership offers the vehicle you want, it’s worthwhile to ask about dealer fees before getting deep into negotiations. Reading online reviews will ensure you get the full picture, good and bad.
As for Lowery , knowing that the dealership she was going through had a good reputation put her mind at ease. She asked for specific information — the monthly payment and a list of fees — and the sales staff delivered exactly what she asked for. Their transparency sealed the deal.
“For me, going in feeling like I knew a lot of information was the key to having confidence and making the right call. I was not afraid of walking away,” Lowery says.
While it may seem counterintuitive, being willing to leave an offer on the table is a good tactic for negotiating a car price, especially if you feel sales staff are not being transparent with you. After all, high-pressure sales tactics and misrepresenting loan details are often hallmarks of auto lending scams.
Shop rates and compare multiple lenders
“For most consumers, comparing lending options before borrowing is critical,” Lowery advises. “The first lender you apply with isn’t necessarily the one that will offer the best rate — the only way to find the best deal is to shop around.”
When it comes to any major financial commitment, comparison shopping is key. You will need to meet a variety of eligibility criteria, including a minimum income and debt-to-income (DTI) ratio. Your credit score, however, is one of the most important factors.
Qualifying for manufacturer financing deals can be difficult, and lenders often require a credit score of 675 or higher and a DTI of less than 50 percent. Some manufacturers may also require a down payment, set rigid terms or limit incentives to particular vehicle models.
“A person that has a 760 or higher credit score is going to get a remarkably lower interest rate on an auto loan than somebody who’s subprime,” says Jonathan Smoke, chief economist for Cox Automotive. “And so it’s absolutely worth improving your credit before you even think of getting an auto loan.”
With average auto loan rates for new cars sitting at 13.08 percent for subprime borrowers (scores of 501 to 600) and 4.77 percent for super prime borrowers (scores over 780), you can save a significant amount of money on interest by improving your credit. It will also give you more lender options – and make it easier to qualify for special financing terms offered through manufacturer financing, including 0% financing deals.
Lowery chose not to follow this path, but for good a reason. “Because I’m so familiar with the auto market, I knew a good deal when I saw one. In the end, I don’t regret my purchase or financing choice one bit.”
Bottom line
Choosing manufacturer financing can help you snag one of the best auto loan rates on the market, but you’ll need a good credit score, low DTI ratio and decent down payment to qualify. You can also make the most of your negotiations by knowing what you want and what it will cost, prioritizing your down payment and researching dealerships that offer manufacturer financing deals with good customer service.
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