Most car buyers arrange vehicle finance through their dealership. Who is getting the better deal here – you or the dealership? Here is an explanation of the what the dealer will do and why they are so keen to do it! Plus tips to make sure you get the best car finance deal out there.
When you are buying a car from a dealership, the dealer will be keen to help you arrange vehicle finance to fund the purchase. Almost every dealership has a Finance Manager who needs to have particular qualifications to hold that job. There’s no doubt about it… using a dealer to arrange your car finance is certainly the easiest and most convenient way to do things.
Let’s be frank here, though… The reason your dealer is keen to help you arrange a car loan is that they get a commission from the bank for doing it and this commission is invaluable to dealerships.
Before you get too nervous about this, just remember that the thing the dealer wants above all is to sell that car quickly for as much profit as possible. That is priority number one. At the moment, in our Covid world, only about 30% of car finance applications are approved and the Finance Manager will know every trick in the book to try to squeeze you into that car (I mean financially squeeze your bank balance into the finance deal – if you have to physically squeeze yourself into the car perhaps consider a bigger vehicle!). The Finance Manager will work hard to get you an approved deal and this is valuable to you.
You might want to read: My Finance Application was Declined, What Now?
Car Financing Options Explained
There are a number of different types of car financing available. Most are called ‘instalment sale agreements’ but they come in different flavours. There is vanilla but you can add choc chips (Balloon payments) or go low-fat (Deposits) or strawberry (Fixed Interest rates). Nowadays there are really exotic flavours like Lemon & Poppy Seed (Leasing) and Salted Caramel (Guaranteed Future Value) there are flavours to suit all tastes and the typical menu can be studied in the article below.
You might want to read: What’s the best way to buy a car
Submitting your vehicle finance application to all the Banks….
The Finance Manager will send your vehicle finance application to get a quote from all the different banks. Smaller dealers may only work with 1 or 2 banks but larger, well-established dealers will work with ALL the banks, which is to say the Finance Manager will send the quote to 4 or more different lenders. This is good for you as it will save you a ton of work but your first check should be that the Finance Manager is actually doing this.
The respective banks can offer very different Interest rates, Balloons, Deposits, etc… Remember to Look at this closely and the Finance Manager will have the experience to give you advice on the best option for you but it is best to do your own homework as well.
Also read: Pros & Cons of the Balloon Payment
Also read: Variable vs Fixed interest rates: The Pros & Cons
Not all banks offer the same commission to the Dealer. You should enquire about this because you want to be sure that the dealer is making the right decision for you as a customer and is not influenced by commission they might get from the bank.
Until surprisingly recently, the Finance Manager could actually alter your quote after it comes back from the bank and change, for example, the interest rate, in order to give themselves better commission. The big banks, quite rightly, now have many rules in place these days to limit this behaviour – but it can still happen – so be careful and ask questions!
Helping you settle your existing Vehicle Finance Deal
If you owe more money on your current car than its trade-in value then this account will need to be settled as part of the process of buying your new car (the difference/”shortfall” will need to be refinanced).
Unsurprisingly then, your current finance deal is often a big reason why you can’t always buy a new car when you want to. Your dealer can be an invaluable guide if settling your existing deal becomes a complication to your next vehicle purchase… plus they do the paperwork for you.
Rule # 1 here is to make sure you are getting the best price for your trade in – nowadays there are many great options available. Alternatively, you can ask your bank to write off the problematic part of your existing deal based on your good looks and winning personality – but I don’t rate your chances with that option!
Get some extra stuff
When you are buying a car, sometimes you want some extra stuff. Maybe things like a towbar or canopy for your bakkie. When you are sitting with the dealer’s Finance Manager, they may talk to you about optional service plans or warranties that you can also purchase along with the car.
When you buy these at the same time as the vehicle, the dealer’s Finance Manager can often include these into the deal and get them financed by the bank. Some of these products are expensive and you don’t have the cash sitting around to buy them. Including them into the car finance deal and paying them off along with the monthly installments for the car can be useful.
The rule here is to check your vehicle finance agreement closely to make sure you fully understand everything you are paying for. You would not be the first person to pay for some sneaky product that they didn’t realise was there.
Paperwork Hell!
Buying a car involves a lot of paperwork! The bank will ask you to provide a copy of your ID, present proof of your income and sign contracts and other documents. The vehicle will need to be registered in your name (“the owner”), although the bank will be the “titleholder” – the list of tasks goes on and on. If you use the dealership’s finance manager, they will happily do all of this on your behalf. You will make your life easier here if you pull together your ID document, 3 months payslips and 3 months bank statements beforehand.
Car Finance Approved or Declined?
At the start of this article, I mentioned that only 30% of vehicle finance applications are ultimately approved. That means that most of the people who walk into a dealership walk out empty-handed. When buying cars, there is nothing more important than your credit profile. It is the secret sauce that makes everything taste better.
You might want to read: My Finance Application was Declined, What Now?
