Choosing between a finance broker and dealer finance can make a big difference to what you pay for your car loan.Buying a car can be a fun but daunting experience and the entire process of visiting dealerships, negotiating a deal and payment for the car can be confusing and overwhelming for many. In many cases, a person can find a good deal on a car (the MoneySmart car loans guide is a helpful independent reference) but when it is all finalised they can be left scratching their head wondering why it all cost so much more.The Car Dealer usually will push you into their dealer finance quickly, don’t forget, that you have another option in the form of Car Financewith a Broker.
So why speak to a finance broker before discussing finance at a dealership?
Flexibility and options
A broker can offer a range of car finance options including:
One of the major differences is that dealers are focused on monthly targets and on generating income from every vehicle sold. A big portion of this income comes from Finance and Insurances sold to a customer. When a dealership has to maintain this benchmark for income generated per vehicle, it results in higher rates, unsuitable loan structures such as high balloons/residuals (that will show lower repayments but cost more) and insurances that pay large commissions to the dealer. A brokers business overheads in most cases will be much lower than a dealership and many individual brokers don’t have any KPI’s or targets to maintain or insurances to sell, resulting in a more transparent approach when quoting.
Access to more lenders
Most dealers are limited to 1-2 lenders and unless your particular application fits within that dealer’s guidelines it could result in a decline.A broker is an intermediary between yourself and a larger panel of lenders, each lender offering a special Niche that they cater to. If you have a lower credit score, a new business, prior defaults, just started a new job, casually employed or are self-employed, a broker can give you a variety of options and lenders to consider.
Consistent Service / faster approvals
A dealership is a large business with many staff, varying rosters, and regular turnover. The person you see on the day of purchase may be different to the person that works on your loan and different again to the person you see when you sign up the paperwork. A broker can offer consistency and 1 point of call from start to finish. You will generally have direct access to them and will receive real-time updates and faster approvals.
Supporting local family business
Many finance brokers are locally owned small businesses and care about the final outcome of your experience. Although a good dealership would also care about your customer experience, with such a high volume of customers it is difficult to maintain a personalised customer relationship with each buyer. Your local broker will be there when you call back in a year’s time to refinance your home-loan, they will be there in 3 years’ time when you have a question regarding your loan, they will be there in 5 years’ time when your loan is finished and you are looking at financing a new car. By supporting local business, you are helping that person provide for their family and contributing to a local small business economy. At SB finance we offer property and asset finance with a specialisation in car finance. With years of experience in new and used car dealerships, we assist our customers in understanding the process of purchasing a car through a dealer. We can help them source, negotiate and finance the vehicle, with the aim of making the process fast and straightforward.
Questions Worth Asking Before You Sign at the Dealership
Dealer finance is not automatically a bad deal, and sometimes a manufacturer campaign genuinely is the sharpest option available. The problem is that you are usually asked to decide in the finance office, at the end of a long day, with the car already chosen. A handful of questions asked early will tell you most of what you need to know.Ask what the comparison rate is, not just the advertised rate, because the comparison rate folds in most fees and is the only figure that lets you compare two offers fairly. Ask which lender is actually funding the loan, since dealerships broker to a panel just as we do and the answer tells you who you will be dealing with for the next several years. Ask what the total amount payable is over the full term, and whether there is a balloon or residual payment at the end, because a low monthly repayment with a large final payment is a very different product to what it appears to be.Then ask what happens if you want to pay it out early, and what fees apply if you do. Circumstances change, and an agreement that penalises early repayment can quietly cost you more than a slightly higher rate would have. If you want a second opinion on an offer already in front of you, our car finance team can compare it against the panel before you commit to anything.
Finance Broker vs Dealer Finance: The Verdict
In most cases, a finance broker gives you more choice and a better chance of a competitive rate.Before you sign at the dealership, it pays to speak with a finance broker who can compare lenders on your behalf.
