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Is it better to get a car loan through a dealer?

Alex Ritchie avatar
Alex Ritchie
- 4 min read
Is it better to get a car loan through a dealer?

When it comes time to purchase your first or next car, you may assume that simply taking out a loan at a car dealership is your best option.

However, you could be missing out on potential savings by shopping around and comparing your options. Let’s explore the benefits and disadvantages of taking out a car loan through a dealer. 

Benefits of getting a car loan through a dealer

Let’s be honest. Sometimes Australians simply do not have enough hours in the day to spend trolling through bank websites to find a car loan deal that suits their needs. 

Arguably the biggest advantage of taking out a car loan at the dealership is the convenience it offers. A dealership car loan is a one-stop shop, where you may be able to finance your vehicle purchase and drive away with your car all in the one place. If you are time-poor, a car dealer may be a faster alternative than finding your own best car loan. 

Further, a dealership may also offer you promotional offers for taking out a car loan with them. This may include cashback incentives or even a markdown on the cost of your vehicle. Also, some dealerships may have relationships with specific lenders, which may allow you to fast-track your application, or nab a more competitive interest rate, in some instances. 

Risks of getting a car loan through a dealer

While taking out a car loan through your car dealer may seem more convenient, it’s worth noting that nowadays comparison tools make finding your next car loan as easy as clicking a button.

Comparison tables allow you to easily compare car loan options from a range of lenders, based on your specific needs and budget. You can view loans side by side, allowing you to quickly see which loan may best suit your needs. You can also use our Car Loan Repayment Calculator to see how different car loan options would fit within your budget. 

Car dealerships may only present you with a few loan options from lenders they earn commissions from. Whereas doing your own research may allow you to view a greater range of loan options - potentially with lower interest rates and fees, as well as more features and perks. 

In fact, you could be missing out on thousands of dollars in interest savings by opting for the first car loan offered to you by a dealer. Dealership car loans can often come with higher interest rates, especially compared to some of the most competitive options on the RateCity database.

Some dealerships may also offer you additional extras, such as extended warranties, that may increase the total cost of your loan. 

Benefits

  • Convenient
  • May gain promotional offers and perks from dealer

Drawbacks

  • Generally higher interest rates and fees
  • Miss out on better-suited loans/lenders

Boost negotiating power with pre-approval 

Before you head into the car dealership, it may be worthwhile considering applying for car loan pre-approval.

This may offer you greater negotiating power, as you already know exactly how much you can spend, and you won’t waste your time on vehicles outside of your budget. The dealership may take you more seriously and potentially offer you more competitive terms if you’ve already secured financing, as it can deflect dealership sales tactics.

Also, if convenience is important to you, pre-approval may help you fast-track driving away with your new car, as you’ve already completed a lot of that pesky paperwork with your lender. Plus, you may feel less pressure to make quick decisions at the dealership, as you have reduced the risk of losing out on a great deal due to financing delays. 

Keep in mind that pre-approval is not full loan approval, and the lender may still reject your loan application if your financial situation changes. 

Ultimately, whether it's better to get a car loan through a dealer or another lender depends on your financial situation and the specific terms being offered. Whatever option you choose, be sure to carefully consider the interest rate, loan term and any fees charged, before you sign on the dotted line.

Compare car loans in Australia

Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.