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Avoid dealer arranged finance



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    Most new and used car dealers offer to arrange finance for car buyers to make themselves a one-stop shop. Unfortunately, that convenience comes at a cost.

    Read on to find out why you should avoid dealer-arranged finance, including answers to FAQs.

    What is dealer-arranged finance?

    As the name suggests, dealer-arranged finance is where a dealer has a relationship with a lender and they help you to fill out and submit all your car loan application paperwork.

    What are the disadvantages of dealer-arranged car finance?

    The main disadvantages of dealer-arranged finance are listed below:

    • The terms and conditions of dealer-arranged finance usually favour the dealer. The dealer will often make a profit on the finance. Even a small difference in the interest rate charged can make a big difference to both your regular car loan repayments and the total amount you pay over the full term of the loan.
    • The loan may have a low introductory rate for the first year or two before reverting to a much higher rate.
    • They may require a balloon (large) repayment to be made at the end of the loan term.
    • They may not allow you to make any extra repayments.
    • There may be an additional fee if you decide to pay your loan out early.
    • You don’t get access to any other car finance options. Dealer finance should also be avoided because it limits your options to the lender chosen by the dealer, rather than all the lenders in the market.
    • Just like you shouldn’t buy a car without visiting a few dealers and researching the market online, nor should you limit your finance option to just one lender chosen by the dealer. You can bet that the terms and conditions the lender offers will be the best for the dealer, not necessarily for you.
    • It can be used to place subtle pressure on you to make a quick buying decision before you walk out of the car yard.
    • Your car buying options will be restricted to near (or near new) vehicles.
    • As you can see, there are plenty of disadvantages to dealer-arranged finance.

    What are the alternatives to dealer-arranged finance?

    The alternatives to dealer-arranged finance is to either:

    • Arrange it yourself (which can be time-consuming and confusing if you aren’t used to looking at loan terms and conditions), or
    • Use the services of an experienced car finance broker to provide you with advice on all the car loan options in the market. Car finance brokers like our experienced team at National Loans work for car buyers, not car dealers.

    Our job is to find you a great car finance deal from among more than 50 lenders in the Australian market. Car finance brokers like us are a ‘one-stop shop’ just like dealers when it comes to finance. The only big difference is that we are on your side.

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    What car finance options are available besides dealer finance?

    The range of car finance options available as alternatives to dealer finance include:

    • Personal car loans (if you’re buying a vehicle for you own personal use)
    • Business car loans (if you’re buying a vehicle that will be used at least 50% of the time for business purposes).
    • Novated leasing (you can read more about this option here).

    Both personal and business car loans can be either secured or unsecured.

    What is the difference between secured and unsecured car finance?

    Secured car finance requires you to provide your vehicle as collateral security for the loan. This means that the lender can legally repossess your car and sell it if you don’t make your repayments.

    But the good news is that it provides the lender with security, so they will charge you a lower interest rate.

    Unsecured car finance is the opposite of secured car finance. It doesn’t require you to put your vehicle up as lender security, so you are usually charged a higher interest rate to compensate the lender for the increased risk. This means that both your regular repayments and the total amount you need to repay is higher for unsecured loans of the same amount than secured loans.

    How do I increase my chances of getting a car loan approval?

    There are a range of strategies you can use to help you qualify for a car loan:

    • Ensure that you have stable employment and can afford your repayments.
    • Check your credit score, and if necessary, take steps to improve it.
    • Apply with a car finance broker who will be able to give you advice on what deals are currently on offer in the market based on your specific needs and financial situation.
    • Apply for a secured loan rather than an unsecured loan.

    Why it’s better to walk into a car dealer with pre-approved finance

    Did you know that you can get your car finance pre-approved before you even set foot in a dealership and that it can save you money if you do?

    Getting pre-approved finance provides you with the following benefits:

    • It lets you know the price of the vehicle you can afford to buy (saving you time and hassle when researching the market).
    • It gives you negotiating power with sellers because you can make a firm offer at lower than the advertised price. Firm offers are always attractive for sellers to consider because they are guaranteed sales (i.e. not subject to finance approval and the associated risk of not being approved).

    Want to learn more about negotiating the best rates? Check out this post on negotiation tips that you can use with car dealers or private sellers. It’s especially important that you’re prepared if you’re buying at a car dealership because car salespeople negotiate for a living. They know all the “tricks of the trade”.

    How can I apply for pre-approved car finance?

    You can apply for pre-approved car finance online. It takes less than 5 minutes and our experienced team of brokers can provide you with an answer in as little as an hour if you can supply the basic information that we need.


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