Banks, brokers or car dealer finance: which option is best for you?
Deciding on a car loan can be challenging, it’s important to carefully consider your financing options to find the one that suits your needs.
Learn the differences between dealers, banks and brokers, and why going through a dealer may be your best choice.
Dealers
Taking a loan out through a trusted dealer, like Toyota, offers a one-stop-shop approach
Dealer financing is a loan acquired through the dealership when you are purchasing your vehicle, such as Toyota Finance.
Taking a loan out through a trusted dealer, like Toyota, offers a one-stop-shop approach to buying a vehicle. That means the purchase and financing can be taken care of easily and conveniently.
The limitation with dealerships is that they only specialise in car loans. The upside of this expertise is that the dealer can save you time and energy by taking care of the car loan paperwork for you.
Toyota Finance dealers can also offer fixed rate options, which can bring certainty to repayments and manages the risk of rising interest rates. That means you can budget for your repayments and know exactly what to expect.
Banks
Taking a loan out through a bank means you’re borrowing directly from a lender
Most people have a relationship and credit history with a bank. For example, according to the 2021 census, 35 percent of Australians have a mortgage. Meanwhile, according to the RBA, there are approximately 17 million bank cards in circulation.
The benefit of taking out a loan with a bank is that you’re borrowing directly from a lender. On top of that, borrowing from your own bank allows you to easily manage your loan alongside all your other accounts for added convenience. If you have a mortgage and enough equity in your home, this can open an avenue to draw down on the equity to purchase your car.
However, borrowing against equity can also expose you to movements in interest rates when taking on a variable rate. A longer loan term may extend the repayment period and result in paying more interest in total. Another challenge to consider is the size of a bank — large banks may not be able to provide the service and personalised loan specifications you are looking for.
Brokers
Financing through a broker is beneficial for specialised areas
Brokers are becoming an increasingly popular choice amongst Australians when trying to access a car loan. A broker's role is to facilitate a connection between lenders and borrowers — they can work on behalf of the lender to find suitable loan options.
Brokers will usually have a specialised area of expertise, which can be vehicle finance, and can provide ongoing service and advice, including refinance options and other new deals.
The drawback of using a broker is that it can often be more expensive due to the additional margin and fees charged on top of the loan. There can also be extra layers of administration and paperwork, delaying the time it takes to find finance and buy a vehicle.
Which lender is right for you?
Taking out a loan is an important decision and requires thorough research. Everyone’s personal financial circumstances are different, so financing that is suitable for one person may not be suitable for another. Make sure you choose a responsible lender who is willing to take the time to understand your financial situation, including your income and expenses. Avoid lenders who may try to push you into a loan that is beyond your means to repay. Instead, look for a partner who will work with you to find a solution that is affordable and sustainable for your budget.
