Motor Vehicle Finance – Traps & Pitfalls

Mortgage

Purchasing a new car is one of life’s greatest joys.  That first drive from the dealership home, the first time your friends see you driving, the jealous looks from your mates as they covet your new ride. It is special, but, it all slides away when you realise you got duped on the loan.  Many purchasers are blinded by the unblemished paintwork of their new ‘wheels’ and fail to pay enough attention to the loan details. Let’s take a look at dealer finance vs personal car loan.  Do you know which to choose

What’s the difference?

Dealer finance is when the dealer contacts their bank or loan company and helps you arrange a loan for the car. They make all the arrangements while you do very little. Sounds ideal!

A car loan is when the buyer (that’s you) arranges all the details of the loan themselves, completing the enquires, and loan application from their bank, credit union, or a loan company.  Your chosen loan provider then provides the funds directly to the dealership.

Scenario:  You’re on the lot, you’ve found the car, the colour is perfect, and the guy said he will throw in the floormats Woohoo! Then the question comes…. Sir/Madam, how would you like to pay for the vehicle, do you need finance?  Many will panic at this stage and simply take the path of least resistance, after all if they threw in the mats, they wouldn’t diddle you on the finance, would they?

The benefits of dealer finance

  • It’s a simple process – You tell the dealer how much you can afford to pay per month and they complete all the details and paperwork with the bank or lender.
  • The dealer will make it happen – The dealer is invested in this loan application; after all, they want to sell the car. And for this reason, they’ll pull out all the stops to ensure that you get your finance.
  • It’s an option if you have poor credit – Some dealers will offer financing packages to buyers with a poor credit history which is a huge advantage.

However, these benefits come at a price.

The drawbacks of dealer finance

  • You need to trust the dealer – With you completely removed from the negotiating process, you have no choice but to trust that the dealer has found the best deal in the market for you.
  • The dealer holds all the cards – The dealer is in complete control of the situation. In fact, you might even feel that the price you have been offered may not be there if you don’t use their finance broker.
  • It could cost you more – You also run the risk that the dealer has marked up your monthly payment to make a little extra profit for themselves.

Now, let’s look at a car loan

With you taking charge of which lender you apply to, how much you apply for and how long the loan term should be, you have taken control.

The Benefits of a car loan

  • Better negotiating power –Dealing directly with the lender places you in a position to negotiate the payment structure and occasionally the interest rate.
  • Personal relationship –Talking to and dealing with the lender could give you a little leeway in the future should there be any issues with late payments or a mix up with direct debits.
  • Better interest rates – Dealers offer their own interest rates which are sometimes a mark-up on the bank’s rates. Place the loan with the bank, and you’ll get the best deal possible.
  • Even more negotiating power –A lender can prequalify you for a loan telling you how much you can expect to borrow. This is a great advantage when talking to the dealer as you no longer need their assistance to finance the car.

The drawbacks of a car loan

We’ll be perfectly honest there aren’t that many. In fact, we can only think of one.

  • It’s less convenient – You must call the banks yourself and perhaps fill out a few forms online or at the bank itself. Essentially, it can take longer to complete the transaction.

So, which is the best option?

Without knowing your personal circumstances, we would suggest using a broker/lender over the dealer finance option.  You get better interest rates, more transparency, lower payments and you get more negotiating power to help you hammer out a better deal for yourself.

Yes, there is that issue of inconvenience, but at Launch Money, we let our vehicle leasing team do all the legwork, so you don’t have to. So, if you’re in the market for a new or used car and have decided that a car loan is your best option, give us a call on 1300 925 081, and we’ll have you approved for a loan and on the road in no time.

To speak with a broker at Launch Money about a loan for your home, investment property or vehicle call our team on 1300 925 081.

Alternatively, you can email your questions to: info@launchmoney.com.au

Sep, 14, 2018

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