When it comes time to buy a new car, the question comes up: should I get car finance or dealership finance? Many car dealers now have a dedicated on-site finance person available to help you fund your shiny new purchase. But before you walk on in and sign on the dotted line make sure you’re aware of potential positives and pitfalls.
Speedy and simple
Many car dealers have only 1-2 lenders they deal with, which means they can quickly get your loan done for you. With low barriers to obtain car finance, and many offering in-house finance via their branded finance arms (we know of some clients who’ve been approved in as little as 60 minutes). And of course, the dealer wants you to get your loan, so they can pocket the cash – therefore they’ll be working hard to get it done very speedily for you.
They only deal with 1-2 lenders
Dealing with 1-2 lenders might be a good thing for getting a loan quickly, it can mean you don’t actually get very good choice or flexibility on the loan. Many dealers have an in-house finance option (usually branded with the car company name (that they’ll push your way regardless of whether it’s in your best interests, is the most competitive option or possesses the features you need.
Potential for better pricing on car/trade in
If the dealership knows they’re going to make more money off you by selling you a car loan to go with your new car, you may find you can get a slightly better price for the car or on your trade in (anecdotally we’ve been told by a client that they were offered $1,000 more on their trade-in if they organised finance for their new car through the dealer). It sure makes you wonder just how much that client was going to be worth on the finance side.
Finance can be limited to new(ish) cars
One of the pitfalls is if you are buying an older car, you might struggle to get finance for it through the dealer. You may also find the incentives they advertised to draw you in in the first place (think: 0% interest terms) may not be available for the vehicle you’re purchasing. You may find you end up with a more expensive and more restrictive loan than you first thought.
Many of them are unlicensed
Now this isn’t applicable to every car dealer and it’s not necessarily an indicator that the car dealer is doing anything wrong, but according to data supplied by ASIC the majority of car dealers claim exemption from requiring a credit licence. This means they aren’t subject to the same strict lending standards and regulations that businesses that hold an Australian Credit Licence (like Entourage) are required to adhere to.
What gives you the most power?
When it comes to negotiating with a dealer for a new or used car, having the cash ready to go that you’ve already had pre-approved via a lender can be a very powerful bargaining tool.
Flexibility on your loan
If you take the loan out through the dealer you may find you don’t have access to the same features as if you source it yourself or use a finance broker. Balloon or no balloon, early repayment fees or extra repayment fees, paying monthly or fortnightly, set up fees and more – there are a lot of variables associated with a car loan depending on your circumstance, so it pays to have a chat with your broker beforehand so you know what the true cost of your loan is going to be.
You may also find the dealer will offer to include some added extras on your car loan, like add-on insurance, tyre and rim insurance, gap protection and more. If you don’t know what these things are and how they are going to benefit you then you may not want to be paying for them in the overall cost of your loan.
So, to car finance or to dealership finance?
At the end of the day that’s entirely up to you and what you feel most comfortable with. One thing you have to remember is that the car dealer is not going to be taking into consideration your overall financial position like your entourage does. A car loan, which for all intents and purposes is a personal loan, may not be the right choice for you and your overall wealth position right now.