Car Finance or Dealer Finance? Buying a Personal Car.

 Everyone has an opinion on what they think is best, but how do you really decide? Here’s what you need to consider before borrowing money to purchase a new car.

Upgrading? Something a little more comfortable?  Is it a little more space that you are after for your growing family?  Or it could be my favourite – I want one!

There are so many reasons for purchasing a new car and with life, who has time to mess around.  The bottom line is – you haven’t saved up enough money to purchase one with cash – so you need Finance..

So I know I need Finance, which type is best – A Car loan or a Dealers Finance option – which one is best?  Really all you want is something that is simple and easy but aren’t they both?

Let’s look at both options and look at what you may want to ask yourself.

• Dealer Finance –  convenient, you’re already there they can do everything all at once!  Dealers often advertise very competitive rates.  It is important to note that these rates often include what is called a balloon payment.  This is a finance option that means you have a payment or an outstanding amount at the end of the loan to pay to conclude the purchase of the car.
• Car Loans are typically a loan taken out through a bank or another financial institution. Car loans can give you the flexibility to find a loan with terms that work for you, ensuring you can make repayments within your budget.

Dealer finance is attractive for the simple reason that we are all short on time and who has time to waste it shopping around?  They are all similar right?

Secondly, dealers often advertise very low interest rates.

Using Dealer Finance – can sometimes put you at a disadvantage as using dealer finance can give you less bargaining power when purchasing your car.

When you walk in with enough money for your vehicle (cash or Lending pre organised alike) you are in a better position to negotiate a good deal on your car. You may also miss out on the ability to shop around for a loan with features and repayment options that suit you.

 When it comes to dealer finance the numbers matter!

Low-interest finance deals don’t always work out in your favour.    This is for the reason that a dealer still needs to make money somehow.  The dealer may offer you a lower trade-in price for your old car, or stipulate a number of terms and high fees for repaying the loan early.  If you are considering using dealer finance, make sure you compare the offer from your dealer with other vehicles for sale to compare you new car and your trade in to ensure you are getting a good deal for both.

You may also find that your finance has a balloon payment – this is a large lump sum payment that must be made at the end of your loan (it may be anywhere from $2,000–10,000). These payments are designed to reduce the amount of interest you pay, but if you can’t save the money for this, you will need to refinance this amount. In this situation, the interest may be higher than your original source of finance, meaning you pay more in the long run.

Questions to ask about dealer finance:

• What are the repayment terms?
• Are there any early exit fees?
• How much will I pay over the life of the loan, including fees?
• Is there a balloon payment and what are the terms of this?
• Can I make extra repayments?

Car lending is usually packaged into a secured car loan.  That is a loan that uses your car as its security.   You can choose between fixed and variable interest rates depending on what suits your individual situation best.    Using your car as security against the loan typically gets you a lower interest rate (which means you pay less in the long run!).

A key advantage of using a car loan over dealer finance is that you have the power to negotiate with your dealer for the best price on your car.  Your Broker can look at the best deal for you depending on your individual situation.

If you already have a home loan another option is sometimes to look at consolidating your debt into a single loan.  This can streamline your repayments and your broker may even be able to find you some terms on your lending that could be better suited to your individual situation.

Finally, ensure you have pre-approval on your loan before you visit a dealer, so that you are ready to negotiate if you find a car you like.

Questions you should ask about your car loan:

• How long is the loan?
• Can I make extra repayments?
• Are there any early exit fees?
• How much will I pay over the life of the loan, including fees?