Why do some car buyers apply for car finance through a dealer?

Some people apply for car finance through a dealer because it is more convenient to complete the purchase in the dealership but should you get a car loan from a dealer?

Some car dealers offer finance through their own preferred lenders or manufacturer-owned accredited lending institutions (such as Toyota Finance, MyFord Finance, or Nissan Financial, for example.) This means a car buyer can purchase the vehicle and arrange finance within the same transaction, instead of looking to a third party such as a bank, independent lender, or car loan broker.

Some types of dealer finance may come with restrictions or conditions. Some lender finance deals may require buyers to purchase a vehicle at the list price; be locked into buying scheduled servicing from a dealer network; you may have to accept a balloon payment as part of your finance package; you may only finance new vehicles or selected models; or financial product offers may be limited to people with excellent credit scores.

According to the Australian Consumer and Competition Commission (ACCC) report, as part of the Royal Commission into the banking and finance sector, “dealers will be willing to sell some goods and services with a lower mark-up (including new cars) if this means they can sell more high mark-up services (such as parts, insurance and finance).”

Why do most people apply for finance through a lender or broker?

Applying for car finance can give car buyers greater flexibility, more choice, and in some cases, a leg up in negotiation if they choose to get car loan pre-approval.

If a car buyer applies for finance through a car loan broker, the broker can look through dozens of different car loans to see which one is the most competitive and suitable for the buyer. It also gives people with average or below average credit an opportunity to gain approval for car finance.

How to get the most out of your car finance?

A step by step guide to maximise your savings on car loans

Check your credit score

Before applying for any kind of finance, you should check your credit score and credit history to see what types of loans you could be eligible for.

Educate yourself on terms and conditions

Some types of dealer finance may include jargon and conditions such as “balloon payments” which requires you to pay a lump sum at the end of the loan. Know what types of conditions are involved before considering any type of finance.

Look for comparison rates

To make a clear and direct comparison of any two loans, look for the comparison rate, which is an interest rate plus most fees and charges included. This can give you a clearer picture of how much a loan will cost over the term.

Don’t feel pressured to take what’s on offer

If a dealer is pressuring you to take a dealer finance offer, be prepared to walk away. Though dealers will insist their dealer finance is more convenient, make sure you’ve done your homework and determined their finance deal suits you best.

Consult a broker

If you’re unsure about car loans or dealer finance, consult a car loan broker. They can answer questions and guide you through the car loan application process.