Car Loans: Dealer Finance vs Bank vs Broker
ADS Team
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August 10, 2026
24 days ago
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In short: Dealer finance is the most convenient and usually the most expensive, because the dealer earns a commission built into the rate. A bank or credit union is generally cheapest for strong credit. A broker sits between the two, accessing lenders directly and being paid by the lender rather than by you.
Key takeaways
- Dealer finance convenience is paid for through a higher rate.
- Pre-approval before you visit the dealership changes the negotiation entirely.
- A balloon payment lowers the monthly figure but increases total cost.
- Novated leasing can beat all three if you are an employee and it is offered.
The channels compared
| Channel | Typical rate | Speed | Notes |
|---|---|---|---|
| Dealer finance | Highest | Same day | Commission built into rate; convenient |
| Bank / credit union | Lowest for strong credit | Days | Stricter criteria |
| Finance broker | Between | Days | Wider lender panel, paid by lender |
| Novated lease | Effective rate varies | Weeks | Pre-tax salary; employer must offer it |
Get pre-approved first
Walking into a dealership with finance already approved does two things: it separates the car negotiation from the finance negotiation, and it gives you a rate the dealer must beat rather than a rate they set.
Dealers often quote a monthly repayment rather than a rate. That conflates term, balloon and rate into one number that is very difficult to compare. Ask for the rate, the term, the balloon and the total amount payable.
The balloon question
On a $45,000 car over 5 years at 8%:
| Balloon | Monthly | Due at end | Total paid |
|---|---|---|---|
| Nil | $912 | $0 | $54,720 |
| 30% ($13,500) | $707 | $13,500 | $55,920 |
The balloon saves $205 a month and costs $1,200 more overall - plus you still owe $13,500 on a five-year-old car.
Frequently asked questions
Does the dealer have to disclose their commission?
Reforms have restricted flex commissions, where dealers set the rate and kept the margin. Dealers must act within responsible lending rules, but you should still compare against an independent quote.
Is a car loan or a personal loan better?
A secured car loan is almost always cheaper than an unsecured personal loan for the same purchase, because the vehicle secures it.
Can I refinance a car loan?
Yes, and it is worth checking if you took dealer finance under time pressure. Confirm the payout figure and any early termination fee first.
Related reading
- Personal Loans: Secured vs Unsecured
- SMSF Loans: Limited Recourse Borrowing Explained
- Trade Finance for Australian Importers
Sources
- Car loans — ASIC Moneysmart
- National Consumer Credit Protection Act — Federal Register of Legislation
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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