Car loan vs dealer finance

Buying a car can be an exciting process, until you start wading through the various finance options. But choosing your finance doesn’t have to be overwhelming if you’ve done your research.

That’s why we’ve pulled together this information to help you compare car loans and dealer finance so you can pick an option that’s suitable for your circumstances.

When a bank or other financial institution loans you money specifically to spend on a car, that’s a car loan. Car loans are often personal loans, but there are options for business loans too if you’re going to register and use the vehicle for business purposes.

Instead of organising a loan yourself, some car dealerships will be able to arrange finance through their affiliated lender. In some cases, car dealers may have their own branded car finance, for example BMW finance. Essentially, it is a personal loan or car loan that is offered through your car dealership.

Car loans and dealer finance are both loans, and they can be granted for similar loan amounts. The main differences may relate to cost, convenience and eligibility criteria.

When you find your dream car, it can be a hassle to go back to a bank and apply for a loan. Dealer finance may allow you to choose a car and buy it on credit at the same time.

In some cases, a car loan you source yourself may be cheaper overall than dealer finance. While this is not always the case, it can be a good idea to compare a range of options to see what will be suitable and more cost effective for you. You can compare to see what has lower interest rates, but make sure you also consider any fees.

The lending criteria for car loans are similar to the lending criteria for most other loans. This means lenders will expect to see regular income, not too many liabilities, plus a reasonable credit score and credit history. Dealer finance options are bound by the same requirements to complete an assessment of your ability to repay the loan, however may only make their loans available to those purchasing their vehicles.

There may also be different loan options for new and used cars. You should also check if the loan you’re considering includes a balloon payment (a lump sum payment at the end of the loan period), which may make the regular repayments appear lower.

Whenever you’re choosing a loan or other form of credit, it’s vital you carefully review the terms and conditions in the context of your goals and financial situation. It’s especially important that you weigh up the pros and cons of each option and, because everyone is different, get an understanding of what options might better suits your own needs.