Dealer finance vs bank...
Discussion
not that I'm actually interested in buying but following a discussion with Mrs Iroc and how people these days finance cars (ie everything is on a monthly payment) I was shocked to see how much dealers charge for their finance. It was bad enough seeing main dealers offering rates of 9.9% but then on the 2nd hand market I've regularly seen rates of 14.9% and even 19.9% 
Got me wondering what a bank would charge - the very first one that came up was 3%... Why on earth would anyone take dealer finance?
Got me wondering what a bank would charge - the very first one that came up was 3%... Why on earth would anyone take dealer finance?Isn’t it you take the finance as it gives you a big dealer contribution discount -> cancel deal within 14 days and pay it off in full be that from savings or a bank loan at 2.6% APR / or put it on credit card with 0% for 2 years on purchases followed by a balance tfr to a credit card offering 0% again but with a 2.99% fee over a couple of years.
barryrs said:
It’s not always about the rate but the total cost of ownership. A zero deposit but higher rate deal could be the cheapest option over a few years.
Mostly the above though.
This is right. One needs to compare the deals side by side (all purchase costs in) and work out whichever is the cheapest over the same period. Mostly the above though.
People take dealer finance because it’s there and the whole conversation is steered by the salesman/woman to monthly payments. It’s easy to be distracted by that and not stop to think about TCO.
barryrs said:
It’s not always about the rate but the total cost of ownership. A zero deposit but higher rate deal could be the cheapest option over a few years.
Mostly the above though.
Maybe I’m missing something but how could a zero deposit and high rate deal be the cheapest option?Mostly the above though.
As you’re putting in zero deposit you’re then financing the whole amount at a high rate?!?
Mattt said:
barryrs said:
It’s not always about the rate but the total cost of ownership. A zero deposit but higher rate deal could be the cheapest option over a few years.
Mostly the above though.
Maybe I’m missing something but how could a zero deposit and high rate deal be the cheapest option?Mostly the above though.
As you’re putting in zero deposit you’re then financing the whole amount at a high rate?!?
Mattt said:
Maybe I’m missing something but how could a zero deposit and high rate deal be the cheapest option?
As you’re putting in zero deposit you’re then financing the whole amount at a high rate?!?
The dealer offers a high interest rate but PCP on a used car therefore they can make the monthly repayments lower than a straight bank loan by adding a balloon payment to the end which reduces the monthly payment. As you’re putting in zero deposit you’re then financing the whole amount at a high rate?!?
Most people with a PCP deal will not pay the balloon but swap the car again at the end of the deal, they focus on the monthly payment which is lower than a bank loan.
The headline rates you see being offered by banks are just to get your attention, you "could" be offered that rate but it depends on circumstances, loan amount, duration etc. Use the calculator on the HSBC site for example and watch the rate jump from 3.3% to 6.7% as you increase the loan amount above £15k
https://www.hsbc.co.uk/loans/products/personal/
Some customers may not qualify for a substantial unsecured loan from their bank at all whereas they may be accepted for dealer finance as the vehicle is there as security.
https://www.hsbc.co.uk/loans/products/personal/
Some customers may not qualify for a substantial unsecured loan from their bank at all whereas they may be accepted for dealer finance as the vehicle is there as security.
irocfan said:
not that I'm actually interested in buying but following a discussion with Mrs Iroc and how people these days finance cars (ie everything is on a monthly payment) I was shocked to see how much dealers charge for their finance. It was bad enough seeing main dealers offering rates of 9.9% but then on the 2nd hand market I've regularly seen rates of 14.9% and even 19.9% Got me wondering what a bank would charge - the very first one that came up was 3%... Why on earth would anyone take dealer finance?
Franchised dealers are usually obliged to promote the manufacturers used car finance offering, however they can usually get the buyer better rates. Got me wondering what a bank would charge - the very first one that came up was 3%... Why on earth would anyone take dealer finance?Some of the manufacturer used car finance offers include contributions, free servicing, etc. It can often offset the rate OR simply be taken out and then cancelled and replaced with a cheap loan.
An element of people only look at the monthly cost, sadly and end up paying a fortune in interest.
I was taking a cursory look at a 2018 M2 recently, offered at a main dealers @ £29,500. If you'd taken the promoted finance offering, you'd have paid something like £8,000 in interest.
Welshbeef said:
Isn’t it you take the finance as it gives you a big dealer contribution discount -> cancel deal within 14 days and pay it off in full be that from savings or a bank loan at 2.6% APR / or put it on credit card with 0% for 2 years on purchases followed by a balance tfr to a credit card offering 0% again but with a 2.99% fee over a couple of years.
It would unusual for there to be a heavily incentivised used car finance deal to make that the default route, but yes, sometimes you can get a contribution or free servicing, and yes, then avail of the offer and go get a cheaper funding source.eltawater said:
The headline rates you see being offered by banks are just to get your attention, you "could" be offered that rate but it depends on circumstances, loan amount, duration etc. Use the calculator on the HSBC site for example and watch the rate jump from 3.3% to 6.7% as you increase the loan amount above £15k
https://www.hsbc.co.uk/loans/products/personal/
Some customers may not qualify for a substantial unsecured loan from their bank at all whereas they may be accepted for dealer finance as the vehicle is there as security.
Yes the headline rate offered is not the one you will definitely get, and it can vary by amount as you say. https://www.hsbc.co.uk/loans/products/personal/
Some customers may not qualify for a substantial unsecured loan from their bank at all whereas they may be accepted for dealer finance as the vehicle is there as security.
irocfan said:
not that I'm actually interested in buying but following a discussion with Mrs Iroc and how people these days finance cars (ie everything is on a monthly payment) I was shocked to see how much dealers charge for their finance. It was bad enough seeing main dealers offering rates of 9.9% but then on the 2nd hand market I've regularly seen rates of 14.9% and even 19.9% Got me wondering what a bank would charge - the very first one that came up was 3%... Why on earth would anyone take dealer finance?
Dealer finance is more likely to be PCP with a balloon/option to return the car whereas a bank loan would just be a straight loan. There's value to some in the lower payments a PCP offers even if it's not cheapest overall. Got me wondering what a bank would charge - the very first one that came up was 3%... Why on earth would anyone take dealer finance?Sarnie said:
vulture1 said:
I got 2% 8 months ago. Nationwide.
Which most people won't be offered..........I guess most people get excited by the shininess and just sign anything put in front of him. I think when you buy a car they should bring you the cash in used notes in a carrier bag and ask you to hold it and count it before handing it over.
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