Why you should sort out your car financing before visiting a dealership


Getting a new car fresh from the dealership is exciting, and paying for it with dealer finance can be an easy and cheap way to go. But sorting out your finance before stepping foot in the dealership leaves you in an even better position.

Dealers can often provide the best finance deal, but it's not a given. Pre-approved finance doesn't cost anything, so having it to compare to the dealership's best offer will leave you with peace of mind knowing you're paying for your new wheels in the best way possible.

Roland Bleyer, founder of independent comparison site CreditWorld, says car finance is like ski hire. If you hire from the resort, your choice is limited and you forfeit bargaining power.

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"My advice is to do your homework and if possible, get your finance sorted before you step into a dealership. If you don't, unfortunately you can end up paying much more for your new vehicle than you anticipated," says Bleyer.

Bleyer distinguishes between the cost of a car and the cost of financing a car through a dealership.

"Sadly car dealers tend to get a bad rap. A lot of people worry about being pressured or tricked into paying too much for a car when they go into a dealership but in reality it's the finance they sign up for while there that causes them the most financial pain."

Bleyer outlines six key reasons why you should walk into the dealership with pre-approved finance to compare with dealer finance.

1. Avoid credit score issues or surprises  

Just about everyone has a credit score. The better the score, the better the interest rate you can obtain. Shopping around for the most ideal car loan enables you to find the best loan and rate based on your score.   If there are issues with your credit score, you can address these before getting a loan.

2. Find the best loan

Getting your car loan before walking into a dealership gives you time to do your homework and find the best loan for your needs and financial circumstances.

3. You'll be taken more seriously

Walking into a car dealership with pre-approved finance shows the dealer you are serious and ready to buy a car. The sales staff will give you more attention and make more of an effort to meet your buying needs.

4. Pre-approval gives you the negotiating power

Having the money ready to go gives you the negotiating power. Because you are able to purchase on the day, it means you can push harder to get a better deal. Loan pre-approval puts you in the same category as a cash buyer.

5. You are not reliant on the dealer

Purchasing a car and using dealer finance to do it means you are relying on the dealer to get the deal over the line. You are at the mercy of the dealer.  Having your own finance ready to go gives you more power to dictate the terms of the deal.

6. You'll avoid hidden fees and charges

While some dealer finance may appear good on the surface, underneath hidden fees and charges can come back to bite you and involve a significant amount of money.  These types of fees include administration fees, statement fees, late fees, early payout penalties, interest on fees, and other costs.

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David Thornton was a journalist at Money from September 2019 to November 2021. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.