You have two main options for car finance:

  • Car loans
  • Dealership financing

Both will put you behind the wheel of a new vehicle, and both require regular repayments. There are other similarities too, but there are just as many differences. In this blog, created by the lending experts at Fox Finance Group, we’ll cover all of them, helping you to find the perfect option for a new or used car loan.

New Car Loan: Pros and Cons

A car loan is financing acquired through a specialist lender. The lender gives you the funds for the vehicle (often minus a deposit) and you repay it over a period of 1 to 7 years. These loans are usually secured, so if you fail to repay the debt, the car will be repossessed.

Pros of Getting a New Car Loan

  • Flexibility: Car loan providers aren’t tied to any specific dealership or manufacturer. You have the freedom of choice. You can opt for a new or used car loan; a hatchback or an SUV; a Toyota or a Ford. You choose! 
  • Competitive Rates: At the Fox Finance Group, we work with dozens of lenders to help you secure the best loans. The sheer volume of options means we’re able to compare on your behalf, and this isn’t always possible with dealership financing.
  • Immediate Ownership: The car is yours as soon as you sign the paperwork. You have obligations and can lose the vehicle if you fail to meet them, but it’s still in your name.

Cons of Getting a New Car Loan

  • Requires More Research and Comparisons: With a new car loan, you can’t simply walk into a dealership and wait for them to hand over the paperwork. You need to jump through a few more hoops and ensure you have the necessary paperwork. Of course, working with lending specialists like the Fox Finance Group will simplify this process.
  • May Have Stringent Eligibility Criteria: You may be required to meet strict credit score and deposit requirements, though these vary by lender and loan type.
  • Longer Processing Time: Car loans usually take longer to process than dealer financing, although that’s not always the case.

Lady test driving a vehicle before obtaining a bad credit car loan

Financing through a Dealership: Pros and Cons

Dealership financing is offered by the dealer selling the car. The dealer typically acts as an intermediary, with a finance company or manufacturer (such as MyFord Finance and Toyota Finance) setting the terms.

Pros of Dealership Financing

  • Convenience and Streamlined Process: The convenience stems from the fact that you can find your car in the morning, discuss the terms immediately, and then drive away by the afternoon.
  • Manufacturer Incentives/Special Offers: To encourage customers to take dealer finance offers, many manufacturers offer additional incentives, including extra features, perks, and discounts.
  • Negotiation is Easier: The dealer wants you to sign on the dotted line and drive away. They may be more willing to discuss discounts and offer improved terms as an incentive.

Cons of Dealership Financing

  • Limited Choice of Lenders: A lending specialist like the Fox Finance Group can discuss financing with dozens of lenders to find one that fits. Car dealerships are much more limited and typically use just 2 or 3 financiers. If you don’t fit the profile, you might be out of luck.
  • Balloon Payments: Dealer financing may seem like the most cost-effective option at first, but if you’re being charged much less than expected, it’s likely because of something known as a “balloon payment”. This is a fixed sum of money charged at the end of the loan. It must be paid before the car is yours.
  • Pressure of the “All-in-One” Solution: If you struggle with pressure selling, dealer financing might not be for you. Dealerships often earn their money by selling extras, so you’ll likely be encouraged to add such extras to your package.

Happy couple accepting the keys to their newly financed car

Factors to Consider When Making Your Choice

Your Credit Score

Dealerships are often less forgiving of bad credit than traditional lenders. If your credit score is low, you could be turned away or given unfavourable terms. A bad credit car loan is a better solution.

The Interest Rate

Oftentimes, the base rate of dealership financing seems lower, but it doesn’t tell the whole story.

Look for the comparison rate, which gives you an idea of the cost once additional fees and features are included. The balloon payment is another sticking point. It’s often fixed at around 30%, so if you’re buying a $30,000 car, you’ll be expected to pay a lump sum of $9,000 at the end of the loan. Only when you pay this amount will the car be yours.

Read the terms and look at the whole picture when determining the best course of action.

Your Financial Situation

Can you envisage paying a balloon payment at the end of the loan period or do you want to own the vehicle outright from the start? If that payment is high and seems out of reach, dealership financing isn’t a good fit.

Flexible vs Simplified

Although dealership finance lacks the flexibility of a car loan, it is a much simpler process. Just ask yourself whether that convenience is worth the relatively rigid approach to car finance.


To summarise:

  • Car loans are flexible and provided by a large number of borrowers. 
  • Dealership financing comes from a small number of financiers and is provided by the dealership.
  • You will own the vehicle outright with a car loan but may need to make a balloon payment before the same is true for dealership financing.
  • Both options can get you a vehicle, and they have their own pros and cons.
  • Always read the terms and try to negotiate.
  • Compare lender/finance options before settling on an option
  • Prepare the necessary documents to facilitate a streamlined process

Finally, if you need help acquiring a car loan, contact one of the lending specialists at Fox Finance Group. We have years of experience and work with many lenders. After reviewing your situation and needs, we’ll connect you to a suitable lender and answer any questions you have about the process. You’ll get the car you want, the terms you can afford, and the help you need—and we’re just a phone call away!


About the Author

Rowdie Lang

Rowdie has been a part of our Team since 2020. He has witnessed firsthand the ongoing evolution of the finance industry as technology continues to change the way customers' access financial services. He has a passion for helping people and relishes the opportunity to work alongside our teams every day as they help our customers financial dreams come true.

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