When you finance through a dealership, the dealer acts as a middleman between you and the lender. The lender approves you at a certain rate — say 5%. The dealer then marks that rate up to 7% and keeps the difference as profit. This markup is perfectly legal and is one of the most profitable parts of a car sale for the dealership.
Getting pre-approved through a bank, credit union, or online lender before visiting the dealership gives you leverage. You already know your rate, so the dealer has to beat it or lose the financing profit entirely. Credit unions in particular often offer rates 1-2% lower than dealer financing.
Manufacturers sometimes offer promotional 0% or low-rate financing on new cars. These deals are legitimate and can beat any bank rate. But they typically require excellent credit and may not apply to all models. Always compare the manufacturer's promotional rate against your pre-approved rate to make sure you're getting the best deal.