Dealer finance vs car loan
When buying a car, there are a few ways to finance the purchase. The two most common are car loans and dealership finance. Although they have the same purpose, they’re actually quite different once you take a closer look.
What is a car loan?
A car loan is a type of financing that funds the purchase of a vehicle. It works similarly to a personal loan, where the borrower pays back the principal loan plus interest over a specified term.
Car loans vary in rates, terms, and features depending on the lender. It also comes in various types, like fixed or variable rate, and secured or unsecured.
What is dealer finance?
Dealer finance refers to loans or finance options offered by car dealerships. Instead of going to a separate lender, you can let the car dealership you’re buying the car from arrange the financing for you.
The funds are provided by a third-party lender. It works just like any other loan, but the financing is processed through the car dealership. The repayments will still be made over time with interest throughout an agreed-upon loan term.
Dealer finance vs Car Loan: What’s the difference?
Either dealer finance or a car loan can help you fund your car purchase. The main differences lie in cost, flexibility, and convenience.
Cost
Dealer finance often advertises lower rates, but it can have much higher upfront and ongoing fees compared to a conventional car loan. Meanwhile, car loans vary in interest rates depending on the lender. Note, lenders may base interest rates on the borrower’s credit score and financial background, as well as current market conditions.
It’s best to check the comparison rate, which includes the associated fees of a loan, in addition to the interest rate, to see the true cost.
You can work out the possible cost of your car finance by using our online car loan calculator. Compare different rates and see an estimate of the total cost of your next car loan.
Flexibility
Some car loan lenders allow borrowers to customise their car loans to suit their needs. At loans.com.au, for example, borrowers can choose from a range of useful loan features like a redraw facility and free extra repayments. They can also decide on a suitable repayment frequency and a fixed or variable rate.
With dealer finance, there are usually few features available, aside from a balloon payment, which is a lump sum paid at the end of the loan term. You can also get a balloon payment when you take out a car loan from loans.com.au, but not all lenders provide that feature.
Convenience
With dealer finance, you don’t have to go to a third-party lender to get a car loan. The dealership representative will usually handle the application processing.
Meanwhile, car loans offer a lot of financing solutions for you to choose from. The application process varies based on the lender. At loans.com.au, the whole car loan process is quick and easy. Everything can be done online, from application to settlement, for your convenience.
Side-by-side comparison of dealer finance and car loans
Looking to hop into your new car sooner? Speak with one our friendly lending specialists to get pre-approved for a car loan today.
| Category | Dealer Finance | Car Loans |
|---|---|---|
What can you buy with it? |
Typically, only new cars or limited to what the dealership allows. |
New or used cars, classic cars, cars from dealerships or private sellers. |
Interest rate |
May offer low interest rates but could also have higher fees. |
Varies depending on the lender and the borrower’s credit background. |
Loan term and conditions |
Usually between three and four years with a balloon payment, and could be subject to early repayment fees. |
Up to seven years, depending on the lender and borrower preference. |
Loan features |
Balloon payment (may be compulsory) |
Optional balloon payment, redraw facilities, and free early repayment. |
Approval and turnaround time |
You can get approved for dealership finance on the same day you buy your vehicle. |
You could get approved for a car loan within a few days, given that you’ve provided all the requirements. |
Advantages |
The dealer representative handles your financing. Drive away on the same day. |
Freedom to choose the car you want. You can find a lender and a loan that fits your needs exactly. You have more flexibility when it comes to your car loan. You can get leverage when negotiating the car sale price. |
Disadvantages |
Limited car options. May have higher or hidden fees. Balloon payments can come at a larger cost. |
Car loan applications can take a bit of time to process. |
How to find the best car finance option
The best car finance solution is one that fits your needs. Now that you know the key differences between dealership finance and car loans, you can weigh the pros and cons to figure out which one is the best option. If you are unsure, always seek professional financial advice.
Take note, car loans aren’t a one-size-fits-all solution. We have a range of car finance options for you to choose from. If you want to learn more about car loans, our friendly lending specialists are more than happy to speak with you. Get in touch with them by calling 13 10 90 or arrange a call!
If you’re ready to start your car loan journey, you can apply online today!
Find out in under 2 minutes if you qualify for one of our low rate car loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
