Should I finance a car through a dealer or a bank?
There are a number of ways you can get the finance you need to buy your next car. The question is, should you look into bank loans – or stick to the finance package your dealer puts together for you?
We’ll explore the subject in a little more detail – and look at some of the pros and cons associated with each option.
Do I have to finance through the dealership?
We’re often asked if you’re obliged to use the finance that a dealer offers – and the answer’s simple; no.
Car dealerships like it when you use their finance products – as they have targets to meet and it means they earn a commission – but you’re free to choose from a wide range of possible products.
Should you finance through the bank?
In the past, banks were generally only able to offer personal loans for people looking to buy cars. This has changed though – and now, most of the high-street banks can offer the same kind of finance products you’d expect to find if you talked to a dealer.
So, you can apply for a Personal Contract Purchase (PCP) plan or Hire Purchase (HP) through the bank – but if you do, you’ll need to buy your next car through a dealer, as the money will be paid directly to the company you’re buying from.
On the other hand, banks will let you explore personal loan options that’ll mean you can purchase your next car from anywhere you want. Rather than make any arrangements with the dealership, the bank will pay a personal loan directly to your account, so you’re effectively approaching your purchase as a cash buyer.
Since the money is paid directly to you and not secured against the car you buy, a personal loan gives you the freedom to explore a wider range of cars.
Why?
Well, it’s all to do with how PCP and HP plans work. If you were unable to pay for your car, the finance company would look to repossess your vehicle, to recoup the money they’re owed. As such, they will only offer finance for cars that meet their lending criteria – usually cars that are intended for the UK market that are under a certain age.
A personal loan means you don’t have to worry about the finance being secured against your car. So – if you fancy an older car, a classic, an import, or anything else a finance company might not be able to help with, then a personal loan from the bank can make a lot of sense.
Should you get financing through a car dealer?
Since many banks can now offer PCP and HP deals – what’s the benefit of getting your finance through a dealer?
Well, since dealers work closely with finance companies, they can often offer a range of products that banks can’t.
For instance, there are some special offers where dealers can offer 0% APR (also known as interest-free) finance on select new models. While this usually means putting down a big deposit, it’s a great way of keeping your monthly costs as low as possible.
Another perk that sometimes comes when you finance through a dealership is the possibility of a discount on the overall price of the car. Now, you shouldn’t expect to knock huge figures off the purchase price – but since dealerships get a small amount of commission when they sell a finance package, it sometimes gives them a little room for manoeuvre. Generally, a salesperson won’t offer that discount – but there’s no harm in asking.
Which is right for you?
So, should you finance your next car through the dealership or through the bank?
Ultimately, the choice is yours. If there’s a specific package that a dealer is offering that you won’t find elsewhere, then the dealer option could be right for you. Then again, shopping around different banks might mean you get a better rate compared to limited options within the dealership.
If you want to make sure you’ve got the very best option for you, why not compare quotes with our handy finance tool? You’ll be able to select the amount you’d like to borrow, the term you’d like to make repayments over – then browse an enormous selection of finance options. That way, you can take a few test drives, safe in the knowledge that you’ve found the best finance option for you.
