Dealer finance, bank or broker?
There are three ways to finance a car: the dealer arranges it while you are signing for the car, you bring a loan from a bank or online lender, or a broker places it across a panel. The dealer's rate is the one you see first and the one most often marked up. This guide sets out how each channel prices a loan, the dealer reserve and the fees that turn a 5.9% headline into a 7.8% comparison rate, ASIC's 2026 findings on dealer-arranged loans, balloons and guaranteed future value, and the pre-approval move that makes the dealer compete.
- Dealers mark up the lender’s buy rate by typically 1 to 2.5 percentage points as dealer reserve, and a 1% difference on $30,000 over 5 years is about $800 (Mozo)
- Compare comparison rates: Mozo’s example turns a 5.9% dealer rate into 7.8% once a $1,500 establishment fee and a $15 monthly fee are included
- ASIC’s June 2026 review of 350,000+ car loans at eight lenders found dealer-arranged finance regularly carried excessive fees, including a $9,000 establishment fee on a $49,000 loan (via Mozo)
- Balloons and guaranteed future values lower repayments and raise total interest; Westpac and BankSA publish no balloon on their car loans, Pepper Money up to 50%
- Get an external pre-approval (1 to 3 business days) first, agree the price before the finance, then let the dealer try to beat it (Mozo, Westpac)
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are based on a secured loan of $30,000 over 5 years for vehicle finance and $50,000 over 5 years for equipment finance, as required under the National Credit Code.
The three channels
| What differs | Dealer finance | Bank or online lender | Car finance broker |
|---|---|---|---|
| Who lends | A third-party or captive lender, arranged by the dealer (loans.com.au) | The bank or lender directly | A lender on the broker's panel |
| How the rate is set | Lender buy rate plus dealer reserve, typically 1 to 2.5 points (Mozo) | A personalised rate inside a published range; Westpac median 8.49% | Quoted across the panel on one application |
| Fees | Can include establishment, monthly service, dealership or introducer fees and add-ons; not always in the advertised rate (Mozo, Moneysmart) | Published: $250 CommBank, $350 NAB, establishment fee at Westpac and BankSA | Lender fees plus any disclosed broker fee |
| Speed | Same day, at the dealership (loans.com.au) | 60-second conditional approvals at CommBank and BankSA; funds in 24 hours at Plenti and loans.com.au | Pre-approval in 1 to 3 business days (Mozo) |
| Cars covered | Mainly new or late-model cars sold by that dealership (Mozo) | New and used within age limits: 7 years at Westpac, BankSA, CommBank; 12 at NAB | Widest, including older, prestige and private-sale cars |
| Balloon | Common; guaranteed future value offers (Mozo, IMB) | None at Westpac and BankSA; withdrawn at loans.com.au; optional at Pepper Money | Structured to the car's resale value if wanted |
| Negotiating position | Price and finance blended, so a discount on one can be recovered on the other (Mozo) | Fixed budget; negotiate as a cash buyer (Westpac) | Pre-approval in hand; structure advice (Emu Money) |
| Who is paid | The dealer, via reserve and fees | Nobody in between | The broker, by lender commission, disclosed in the credit guide |
How dealer finance is priced
The dealer is an intermediary paid by the margin. Mozo describes the mechanism: the lender provides a buy rate, the minimum it will accept, and the dealer marks it up, typically by 1 to 2.5 percentage points, keeping the difference as dealer reserve. On top sit the fees Moneysmart warns about, a dealership or introducer fee for referring you to the lender, a broker fee if a broker is involved, and the lender's own establishment fee, plus optional add-ons such as extended warranties and insurance sold in the same sitting. Because dealer finance is not always subject to the same advertising obligations as bank products, Mozo notes, the rate on the poster may leave those out, which is how 5.9% becomes 7.8% on a comparison rate. ASIC's June 2026 Report 832, examining more than 350,000 car loans across eight lenders, found dealer-arranged finance regularly exposed borrowers to excessive fees, with one establishment fee of $9,000 on a $49,000 loan.
What the banks say about their own loans against dealer finance
Westpac's comparison page is candid on both sides. Dealers may advertise low rates on new cars, which depreciate fastest, or on stock they want to sell, and the low-repayment, low-rate combination can be a sales tactic to close you while you are at the dealership; a bank loan sets your budget before you walk in and lets you negotiate the price with confidence. Its own car loan has no balloon and conditional approval before you shop. IMB's point is the loan structure: a dealer package with a balloon changes when you own the car outright. loans.com.au lists the trade-offs fairly, same-day approval and convenience on the dealer side against cost and choice of vehicle on the lender side. The car loan interest rates guide has each lender's published range.
Balloons and guaranteed future value
A balloon, or residual, is a lump sum due at the end of the term. It lowers the repayment during the loan and raises the total interest, because the balloon accrues interest for the whole term; Moneysmart's advice is to be confident you can pay it when it is due. A guaranteed future value, which Mozo describes as a dealer or manufacturer balloon with a guaranteed minimum trade-in value, lets you hand the car back to clear it, but the guarantee carries kilometre and condition limits, and the repayments are lower only because you are financing the gap between price and residual, not owning the car at the end. Pepper Money publishes balloons of 50% on one-to-three-year terms, 45% on four, 40% on five and none on six or more, for new or near-new cars only; Westpac and BankSA publish that their car loans have none, and loans.com.au has withdrawn them from new loans. Run the two structures in the car loan calculator: on $40,000 at 7.5% over five years, a 30% balloon cuts the monthly repayment from about $802 to about $636 and leaves $12,000 owing.
The pre-approval play
- Get a pre-approval before you shop. Mozo publishes one to three business days for an external car loan; CommBank and BankSA publish 60-second conditional approvals. Now you have a comparison rate the dealer must beat.
- Agree the car's price first, including any trade-in, as a cash buyer. Westpac's point: a set budget lets you negotiate with confidence, and keeping the loan separate makes it easier to negotiate the price.
- Then ask for the dealer's finance on a comparison rate, with the balloon, establishment fee, monthly fee and add-ons itemised.
- Compare total cost over the term, not the repayment. If the dealer's package is cheaper with no balloon, take it; a subsidised manufacturer rate on a new car sometimes is.
- Walk if it is not. The pre-approval is still there.
Where the broker fits
A car finance broker prices the loan across a panel from one application, which matters most when the car is older than the bank age limits, the amount is above the bank ceilings, the file has a blemish, or the buyer wants the balloon and term structured to the car's expected resale value. Emu Money's guide to the three channels puts it as panel, structure and pre-approval. The broker is paid commission by the lender and must disclose it; the how brokers are paid guide explains the model. Your Finance Guide refers you to one licensed broker partner; we do not lend, and if the dealer's offer is the cheaper one the broker is bound to say so.
Car finance guides
Rates, structures and the calculators.
Dealer finance FAQs
Is it better to finance through my bank or the dealership?
Is car dealer financing good?
What is dealer reserve?
Why is the dealer’s comparison rate higher than the advertised rate?
What is a balloon or guaranteed future value?
Is 0% dealer finance really 0%?
What does a car finance broker add?
Can I trade in my old car if I use a bank loan instead of dealer finance?
Walk in with a pre-approval
Tell us the car and the budget, and we refer you to one licensed broker partner who arranges a pre-approval across lenders so the dealer has to compete. Free for borrowers, no obligation.