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Car Loans vs Dealer Finance
February 24, 2021●
4 minute read●
If you’re ready to purchase your new car, you may be considering your finance options. If you’re purchasing through a dealership, often you can get car dealer finance set up for you. Alternatively, you can apply for a car loan. While both loan options function similarly, before deciding which is suitable for you, it is best to understand both in-depth.
What is dealer finance?
Dealer finance refers to the loan options offered by car dealerships. They usually partner with a preferred lender and secure the funds from them on your behalf. Dealer finance is usually limited to their specific lender and terms like interest may only be flexible on certain makes and models. The car salesperson may also receive a commission on your loan, which can increase your total loan costs.
What is a car loan?
Car loans are a type of secured loan used specifically to purchase a car, either new or used. Because it is a secured loan, this means you will need an asset to hold against the loan as security. Often, lenders will let you use the car you are purchasing. Since there is less risk for the lender, car loans are often accompanied by low interest rates. However, if you are unable to repay your loan, the lender can repossess your asset and sell it to cover their costs. This, however, is usually only done as a last resort.
So, which is better?
This will completely depend on your individual circumstances. You may find a make and model you love, at a price that is affordable, with a low interest rate. It may seem like a very simple option to just let the dealership handle the finance side; it takes away the stress of finding a lender and negotiating your terms. Dealers will take care of this for you completely. However, lenders will often bundle the car, finance and other optional additions. This could mean that even if you find a 0% interest rate, you may end up paying more than if you sourced a loan with a higher interest rate.
Before you sign any loan contracts or documents, it’s important to look at the total cost of the finance including additional fees and interest. While dealership finance can seem like an easy option, it can often end up being more expensive. For the best prices, it’s imperative to compare your options.
What’s the difference?
To give you a concise idea of your options, these are the differences between a car loan and dealer finance at a glance.
|Wider range of loans available to you
||Dealer handles all loan paperwork
|Using your car as security can reduce the interest rate compared with an unsecured personal loan because there is less risk for the lender
||Dealer commission may increase rates (not just in interest – additional fees are often charged)
|You choose the lender and loan
||Dealer chooses your lender
How to get the most out of your car finance
In order to maximise your savings on your car loan, consider the following steps.
Check your credit score
If you have a good to excellent credit score according to one of the major credit bureaus, you can usually negotiate the best interest and terms for you. If you have bad credit, you may wish to consider an alternate lender like Jacaranda Finance that can be more lenient in their credit requirements.
Know the terms and conditions
Some types of dealer finance may include things like ‘balloon payments,’ which requires you to pay a lump sum at the end of your loan. This often results in a seemingly lower interest rate as you have less to pay in your instalments to cover the loan amount. You should know exactly what you are agreeing to before you sign your contract.
Look at comparison rates
To know which loan is ‘better’, look at the comparison rate, which is the interest rate plus most fees and charges that are included. This can give you a good idea of exactly how much your loan will cost for the entire life of your loan, and which will end up being cheaper overall.
Don’t be pressured into taking a deal
If a dealer is pressuring you into taking their finance offer, don’t concede to this. Though they may insist their option is the ‘best’, ensure that you know where you stand and which finance option will best suit you.
Car Loans with Jacaranda Finance
If you’ve decided on a car loan instead of dealer finance, Jacaranda Finance offers competitive car loans ranging from $5,000 to $35,000. Our secured car loans can be used to purchase new and used cars, and to cover either part of or your entire vehicle purchase. We offer flexible repayment terms, from 1 to 4 years, so you can repay your loan comfortably.
Written by Jacaranda Team