A new car can be an exciting purchase, especially during early stages of the new year with dealerships offering discounts on old stock and private sellers upgrading their vehicles. If you’ve been considering upgrading your wheels and exploring potential financing options – you’re probably aware of the existing wide range of options…
When it comes to financing your new car, should you go with dealer finance or a bank loan? The best option will always depend on your financial situation, how quickly you need approval, and your long-term repayment goals. Here’s what you need to consider when comparing the two.
Bank car loans
A bank car loan is a type of personal loan – usually secured – where the car itself is used as collateral. These loans provide flexibility, with options for fixed or variable interest rates, customisable repayment terms, and the ability to make extra payments or refinance over time.
Pros:
- Flexibility in choosing loan terms and repayment schedules
- Can be used for both new and used cars, including private sales
- Option to refinance or pay off early without hefty penalties
Cons:
- Approval can take longer than dealer finance
- Strict eligibility criteria, including credit checks and income verification
- Interest rates may be higher compared to promotional dealer offers
Dealership finance
Dealer finance is arranged directly through the dealership, often with competitive interest rates to attract buyers. Some manufacturers offer their own finance options, while others partner with third-party lenders.
Pros:
- Fast approval process—often on the same day
- Convenient, with financing arranged at the point of purchase
- Can sometimes access lower interest rates through dealer promotions
Cons:
- Typically restricted to cars available at the dealership
- May include conditions like restrictions on extra repayments or early payout fees
- Some low-interest offers come with hidden fees or balloon payments
Understanding car loan interest rates
Regardless of which financing option you choose, always compare the comparison rate – not just the advertised interest rate. The comparison rate factors in fees and additional costs, giving you a clearer picture of the true cost of the loan.
Beware of ‘interest-free’ offers
Some dealerships advertise 0% or ultra-low interest rates, but these may come with higher upfront car prices, additional fees, or a steep balloon payment at the end of the loan term – A balloon payment is a lump sum (often 20-40% of the loan amount) due at the end of the repayment period. While this can lower your monthly payments, it’s important to plan for the final lump sum to avoid financial strain.
Which option is right for you?
If you want flexibility, competitive rates, and the option to buy a used car or purchase privately, a bank loan might be the better choice. If you need fast approval and are purchasing a car directly from a dealer, dealer finance could be more convenient. No matter which option you choose, comparing loan terms, reading the fine print, and ensuring you understand all fees and conditions is essential.
Need expert advice on financing your next car? At UFinancial, our dedicated asset finance team is here to help you explore your options and secure the right loan for your needs. Get in touch today and take the step closer to upgrade your wheels!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or 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. Content developed in partnership with IFPA.
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