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Comparing car dealer finance to a bank loan

So you’ve finally found the car you’ve been looking for – now it’s time to pay for it. The question is: do you go with the finance offered by the car dealer or do you get a car loan from your bank? Here are some things to keep in mind to make your decision a little easier.


Do your interest rate research

Unfortunately, comparing car dealer finance with a bank loan isn’t as simple as checking advertised interest rates.

Dealers may offer lower rates to appear competitive, but you should make sure you’re comparing apples with apples. That means looking at your total costs – including all the fees and other variables – over the life of your loan. Only then can you really work out which is the right option for you.

A simple way to make sure your comparison is sound is to look for the comparison rate on both a dealership loan and any other loans you’re thinking about. A comparison rate represents both the loan’s advertised rate as well as any other costs, such as establishment and maintenance fees. It gives you a more complete understanding of what the loan will cost.

It’s also worth remembering that dealers may tend to advertise low rates on new cars (which depreciate faster in the first few years) or on stock that they want to sell faster. So you might not always get the lowest rate on the car you’ve got your eye on.

Know exactly what you’re paying

As with any type of loan, the trick is to know what you can afford and understand all your costs before you sign on the dotted line.

Ask about all the possible fees and transaction costs so there are no surprises. This includes factoring in things you might not have even thought about – like break costs (which come with most types of loans) and paying off your loan early.

Most banks map out all your repayments and costs up front, which is a great way to know exactly where you stand.

Build your budget into your finance

Just as with attractive low interest rate offers, it can be very tempting to focus on the low repayment amount on a car finance package. The interest rate and repayment combination can sometimes be used as a sales tactic to encourage you to buy while you’re at the dealership.

On the other hand, a bank loan lowers the risk of impulse purchase. The amount you’re able to borrow is set at the beginning of the loan. This means you have a set budget from the outset. It also lets you negotiate with confidence when you talk to the dealer – you’ll be less likely to choose a more expensive model if your loan amount won’t cover it.

Don’t let a balloon payment burst your bubble

A balloon payment can be a big expense that car owners aren’t prepared for. Basically, it’s the lump sum you owe the lender at the end of your loan term.

While a balloon payment can mean your regular repayment amount is lower over the life of your loan, the flipside is you’re liable for a much bigger repayment at the end. So you need to weigh up having more cash flow now against owing a bigger amount later on.

Think about keeping your finance separate

While dealer finance may seem like a convenient option, many people prefer to keep their car loan separate from their new car purchase. That way, it can be easier to negotiate on the price without it affecting your loan.

Other reasons people give for choosing finance through their bank are things like the transparency of the loan terms, as well as the simplicity of managing their loan through online banking and apps they’re already familiar with.

With a Westpac Car Loan, you car is used as security to give you a lower rate. Another handy feature is conditional approval, so you’ll know how much you can spend even before you step foot in a dealership.#

It pays to do your homework

In short, when it comes to something as significant as buying your next car, it’s important to do your research. Take headline interest rates and special deals into account, but make sure you do the extra homework to understand exactly how much you’ll pay for the car in the long run. Comparing a range of loans from both car dealers and banks will not only help you feel more confident, it could potentially save you thousands of dollars over your loan term.

Things you should know

Personal Loan Contract Terms and Conditions (PDF 394KB) - for customers approved before 18 March 2024.
Personal Loan Contract Terms and Conditions (PDF 210KB) - ​for customers who apply, or are approved, on or after 18 March 2024.​

Credit criteria, fees and charges apply. Terms and conditions available on request.

Normal lending criteria and car security guidelines need to be met for loan approval.

Whether purchasing new or refinancing a used car, the vehicle has to have been imported to Australia by the manufacturer, and all the lending criteria met.

More about conditional approval

#Conditional approval is valid for 30 days based on the understanding that the information you have provided is correct and there will be no significant changes to your financial situation. Before final approval, we will ask you for further details, including information about the car being offered as security. Please note that conditional approval is not a loan offer or formal approval. If your circumstances change, please contact us on 132 032 to discuss your application.