You’re looking for a new car, but you can’t decide where to go for your loan. Should you opt for the dealer’s standard finance, or should you apply to a finance broker? Here’s how the options stack up.
A finance broker arranges loans between you and your lender. They don’t work for the lender. The broker works for you. They are typically paid a fee for their services by you, or they receive a commission from the lender for introducing them to you.
Dealer finance is a loan between a retailer, such as a car dealership, and a customer, such as you. Dealers are usually only accredited with a handful of finance companies, meaning if you don’t meet the guidelines of one or two companies, you won’t be approved.
What’s more, since the business manager only works with a few finance companies, they likely won’t have the experience to secure you a suitable finance package.
While dealer finance seems convenient because it means you can drive your new car out of the dealership right away, there are many reasons why you may opt for a financial broker over taking out dealer finance.
If you’re knocked back by the small pool of lenders at a car dealership, you’re unable to complete your purchase. Brokers have access to a much wider pool of lenders, meaning there’s a far greater chance you’ll be approved for a loan there and then.
Brokers are less target-driven than dealerships who earn a commission for both the number of vehicles, and the number of finance agreements, sold each month. This can result in loans which look good on paper but which are more expensive than broker finance long-term.
Dealership staff work flexible hours, and there’s no telling if you’ll ever work with the same team member twice. This can lead to inconsistency and miscommunications. A finance broker works with you for the entire process.
When you opt for a broker, you are opting for a wide range of flexible loan products. These loans include secured and unsecured loans, leases, and more.
Dealer finance often comes with higher interest rates than if you lend from a broker. Moreover, dealerships regularly charge you early payout penalties if you decide to clear the loan early. This is because dealers offer fixed-rate loan products.
Dealer finance has its place, and it works for many consumers. However, it’s often cheaper and quicker to work with a finance broker. It’s ultimately up to you which option you choose, but you should always at least shop around for the best deal before committing to any loan agreement.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.