Dealer finance vs. a car loan? Compare the options & rates.

Buying a car, whether it’s new or used is something to get excited about. But in our eagerness to find the perfect car it’s all too easy to forget about one small detail; how exactly we’re going to pay for that new set of wheels?

Luckily, for those of us that don’t walk around with an extra $20k in our back pockets, there are options; choose dealer finance or go out and secure a car loan from a broker (like us!) or the bank. Both have their advantages and disadvantages but which should you opt for?

Dealer finance is when the dealer contacts their preferred bank or financier and helps you arrange a loan for the car via them. They make all the arrangements while you do very little. Sounds ideal doesn't it?

A car loan is when the buyer (that’s you!) applies for a loan with a broker like us, or direct from the bank, credit union, or a finance company. You arrange all the details of the loan yourself. You then use the money to purchase the car from the dealer for cash.

It’s an all too familiar situation. A buyer picks a car, goes over all the details, then has an ‘oh I forgot about that’ moment when the dealer asks if they’ll need to finance the car. And for this reason, so many buyers simply go with the flow and opt for dealer finance. But that’s not the only reason why finance might seem like a good option.

• It’s a simple process – You tell the dealer how much you can afford to pay per month and they iron out all the details with the bank or lender.
• The dealer will make it happen - The dealer is invested in this loan application; after all, they want to sell the car. And for this reason, they’ll pull out all the stops to ensure that you get your finance.
• It’s an option if you have poor credit – Some dealers will offer financing packages to buyers with a poor credit history which is a huge advantage.

However, these benefits come at a price.

• You need to trust the dealer – With you completely removed from the negotiating process, you just have to trust that the dealer has found the best deal on the market for you. History and headlines suggest this is unlikely to be the case.
• The dealer holds all the cards – The dealer is in complete control of the situation. In fact, you might even feel a sense of obligation towards the person that is helping you secure finance for your new car.
• It could cost you more – You also run the risk that the dealer has marked up your monthly payment in order to make a little profit for themselves. Your interest rate may appear low, but the cost of the car has risen. Not a very pleasant thought when you consider that they’re already making money on the sale of the car.

Like we said earlier, a car loan means that you are the one that makes contact with the broker, the bank or finance company. And while this may seem like an extremely time-consuming exercise it can pay off in the long run. 

• More negotiating power – When you are dealing directly with a broker or the lender then you are in a position to negotiate the payment structure and quite possibly the interest rate (although most banks will stick to their guns on this).
• More wiggle room – To the bank loan officer you’re more than a name on a balance sheet. Talking to and dealing with the lender could give you a little leeway in the future should there be any issues with late payments or a mix up with direct debits.
• Better interest rates – Dealers offer their own interest rates which are sometimes a markup on the bank’s rates. Get a car loan with the bank, and you’ll get the best deal possible.
• Even more negotiating power – This time with the dealer. A lender can prequalify you for a loan telling you how much you can expect to borrow. This is a great advantage when talking to the dealer as you no longer need their assistance to finance the car.

To learn more about the benefits of a broker, we've put together a few helpful videos. 

We’ll be perfectly honest, there aren’t that many. In fact, we can only think of one.

• It’s less convenient – You have to call the banks yourself and perhaps fill out a few forms online or at the bank itself. (but we know someone who can help with that)

Of course everyone has their personal preference, but we have to say that applying for a car loan via a broker or off your own bat looks like the far better option here. You get better interest rates which means lower repayments, and you get tons of negotiating power to help you hammer out a better deal.

Yes, there is that issue of inconvenience, but if getting on the phone is a major concern or if you have clam up like a shell when it’s time to talk money then you have other options. Calling banks and lenders is our thing!

At Stratton Finance, we do all the legwork, so you don’t have to. So if you’re in the market for a new or used car and have decided that a car loan is your best option, give us a call on 1300 STRATTON (1300 787 288), or get an online quote and we’ll have you approved for a loan and on the road in no time.