The pros and cons of car loans versus dealer finance

A car is a big investment, so it’s important to consider your car finance carefully so you don’t end up paying more in the long run. When deciding how to finance the car you want to buy, you’ll need to weigh up low interest car loans against dealer finance.

Before you start looking at makes and models, there is one essential question: What can you afford? Countless websites offer car loan calculators and online budget planners, but you should also consider all the costs of not only owning, but also running a car.

After the initial purchase, there are annual registration fees, roadside assistance, car insurance, and ongoing costs like maintenance, repairs and even road tolls.

Car loan or dealer finance?

When it comes to financing a car, you are often presented with a variety of options. You could lease, draw on your home loan, or you could opt for a personal loan or dealer finance. Once you’ve calculated the cost, decide on your budget – and more importantly: stick to it.

Two of the most common options car buyers are presented with are car loans and dealer finance. Both options have advantages and disadvantages.

Dealer finance pros and cons

Dealer finance is often a popular choice because it’s easier in the short term. You can basically show up, strike a finance deal and drive away all in the same day. But is easier always better? Not necessarily.

While car dealers offer lower interest rates, they’re usually only available for up to three years. This could result in a balloon payment at the end of the loan, which can be difficult to stomach for those on low income. You’ll also be restricted in your choice of make and model, and negotiating the price of the vehicle becomes virtually impossible. On top of this you’re limited to new cars, and their depreciation is high in the first one to two years.

Car loan pros and cons

If you’re not in any rush, car loans are usually a more sensible choice. There’s more breathing room in terms of car options, new or used. There’s no middle man, so your relationship with your bank can work in your favour. If there’s ever a time when you’re struggling with repayments, the bank can even increase the loan term. If you want to pay it off earlier, some banks are flexible and have no fees for early repayments.

The only disadvantages to taking out a personal loan would be slightly higher interest rates, and at the bank, there is little wiggle room for haggling. The final offer is almost always the best one.

All in all, a low rate car loan would the best deal out there in terms of choice, cost and flexibility.


This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular circumstances and needs.