Dealer finance is convenient — it's also one of the most profitable parts of a car dealership. Here's what the numbers actually look like.
How Dealer Finance Actually Works
When you finance through a dealership, the dealer often receives a commission from the lender — typically 1–3% of the loan amount, sometimes more. On a $30,000 loan, that's $300–$900 going to the dealership, baked into your interest rate.
The Comparison Rate Trap
Dealers advertise headline interest rates, but Australian law requires a comparison rate that includes fees. A 3.99% headline rate with significant establishment fees might have a 5.5% comparison rate. Always compare on the comparison rate.
Balloon Payments: Opportunity or Trap?
A balloon payment (or residual) lets you pay a lump sum at the end of the loan term instead of rolling it into monthly payments. This reduces monthly payments — but you either need cash to pay the balloon, refinance it, or sell/trade the car to cover it. Many buyers are surprised to find their car is worth less than the balloon at the end of the term.
Pre-Approval Changes Everything
Getting pre-approved from your bank or credit union before visiting a dealer fundamentally changes the negotiation. You're now a cash buyer for the purposes of the car price discussion. You can still compare dealer finance once you have your benchmark rate.
What to Ask the Finance Manager
- What is the total amount repayable over the loan term?
- What is the comparison rate (not the headline rate)?
- Are there any early repayment penalties?
- What is the establishment fee?
- Is there a balloon payment, and if so, what's the amount?
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