Welcome to Lesson 2 of Car Loan University 🎓🚗
Today's learning objectives are:
Understand how dealer finance works
Avoid common car loan pitfalls
What is dealer finance?
'Dealer finance' refers to car and vehicle loans provided directly by car dealerships to their customers. Most of the major car manufacturers have their own finance arms. Smaller dealers will often partner with a lender.
Dealer finance typically involves an in-house finance officer who manages the loan process on-site. This can allow for faster approvals and "drive away today" type of deals. However, convenience may come at a price.
Due to a lack of competition, dealer car loans generally come with higher interest rates. In many cases, the dealer makes more money on finance commissions than the sale of the vehicle!
Five reasons to avoid dealer finance
Dealer finance might seem convenient, but there are significant drawbacks. Here are five reasons why using a reputable broker may save you money:
1. Higher Interest Rates
The dealer will offer you finance from a single lender. When we go looking for a great car loan for you, we compare lenders across our entire network of 60+ lenders. That's why the average interest rate for our car loans ranges from 5% to 12%, while dealership financing typically starts at the higher end of this range. The difference can add up to thousands of extra dollars in interest charges over the life of the loan.
2. Hidden Fees and Limited Options
Dealer loans can include hidden fees and charges, such as dealership admin costs. This can make the overall cost of the loan much higher than anticipated. By comparison, we don't just find you a great rate, we go through all of the fees and charges associated with servicing the loan.
3. Stringent Eligibility and Vehicle Restrictions
Do you have a less-than-perfect credit score? Dealer finance often requires a good credit rating. My Finance Agent offers more flexible eligibility criteria and financing options for both new and used cars. Dealer finance is often restricted to new vehicles, restricting your choices if you're considering a used car.
4. Balloon Payments and Pressure Tactics
Many dealer loans include balloon payments (see Lesson 1), which can be oversized and difficult to save for while repaying the loan. You may also find yourself pressured into signing a loan agreement quickly, without time to compare all of your options, whereas we provide a stress-free experience, allowing you to make informed decisions at your own pace.
5. Less Flexibility and Rigid Terms
Dealer loans often have rigid terms and conditions, which can be restrictive if your financial situation changes. At My Finance Agent, we offer flexible loan options tailored to your specific needs, ensuring that you can adjust your loan terms as needed.
We work with 30+ lenders
This means we can find you a great personalised rate with plenty of products to compare.
Got questions? Call and talk with a lending expert on (02) 8313-8400 or request a call back.
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