If you're in the market for a new vehicle you might not even be aware that you could use a broker for your finance. While not as well known as mortgage broking, there are still plenty of brokers out there who can help navigate the car loan market for you.
Is it worth it though? Here's how it all works:
What is a car loan broker?
A car loan broker acts as your agent to get you the best deal on finance for your new vehicle, just like a mortgage broker does for home loans. Car loan brokers should be able to use their market expertise to find the right product to suit your circumstances from their panel of lenders they work with.
The broker will likely also negotiate the deal on your behalf, perhaps leveraging existing relationships to get you a better deal than you would have been able to yourself. They can also help if you have a unique scenario, different streams of income, or extraneous car loan needs.
"A good broker will find the best deal for you. They will also make sure you understand your finance contract and you have been made aware of all the costs associated with it."
- Julian Finch, Finch Financial Services.
How do car loan brokers get paid?
The most common remuneration car loan brokers is a commission on the loan itself. The lender pays a percentage of the interest it receives from you to the broker once the loan gets written. Banks might then pay a trailing commission depending on how long the customer stays with that loan. Alternatively, some brokers may charge a fee direct to the borrower.
This might mean a slightly higher rate compared to what you would have paid without going through a broker - or you could get a sharper, discounted rate available to brokers only.
Car loan broker pros
There are several advantages to using a broker for your car loan:
Saves time and energy
Since a broker does all the research and makes all the enquiries for you, it can free up a lot of your time. There's lots of different car loan products out there, and it can be a bit of work sorting through all your options to find the one that's right for you. Using a broker means offloading all of this work.
More in-depth market knowledge
Using a car loan broker doesn't just mean someone else does the job of finding and negotiating your car loan for you. If you've enlisted a competent broker, it usually means you've got someone with a much more comprehensive understanding of the market acting on your behalf.
If you aren't familiar with car loans, which can include quirky features like balloon payments, a broker can also be helpful in figuring out what type of loan is best suited to you. For example, your broker might know Lender A doesn't lend to self-employed customers, or that Lender B has a better rate for electric vehicles.
Leverage relationships with lenders
Another big advantage to using a broker is they will usually have existing relationships with lenders that could mean a better deal. That might mean lower rates than you would have paid had you contacted the same lender without a broker.
Car loan broker cons
On the other hand, there are also a couple of downsides to going with a broker.
Possible conflict of interest
Most brokers get paid commission by the lender than the borrower. This might make their services seem more attractive, but it also creates the possibility of incentives for brokers to choose select lenders that might not necessarily be best for the client.
This kind of thing is banned by governing bodies and a reputable broker wouldn't be operating in such an underhand way, but it isn't unprecedented. A more common issue is some brokers may only deal with a portion of the available lenders which means you don't have access to the entire market.
Possibility the loan is slightly more expensive
Even if the broker is paid by the lender, in some cases this extra cost might be priced into the rate you'll pay. When lenders do that it means paying a slightly higher rate to cover the brokers costs. However, as we touched on above this might be offset by the brokers market experience finding the best deal available.
Are car loan brokers worth it?
If you're experienced with vehicle loan finance, you might feel it isn't worth using a broker for a service you can just do yourself without too much hassle. This may well be the case, but if this sounds like you, you just need to make sure you're pricing in the value of your own time. If you spend two hours researching car loan products, that's two hours of lost productivity, or maybe two hours that could have been spent on more intangible benefits like spending time with loved ones.
If you're inexperienced with car loan finance, a broker might be more useful. Car loans can vary substantially on both features and rates and if you go in blind you could end up with an unsuitable product or with a ludicrously high rate. Using a reputable broker can mitigate these kinds of concerns, and even if you don't end up using a broker it's still a good idea to get advice from someone who knows what they're talking about.
How much can you save on a car loan?
Since a new car is (presumably) much less expensive than a property, you might not see the need to use a broker or do the comprehensive research necessary to get the lowest rate possible. However, these marginal gains can still add up quickly, even on a smaller sum. Here's the difference between paying 6%, 7% or 8% p.a. on a $50,000 car loan, assuming a five year term:
|
Monthly repayments |
Total interest bill |
|
|---|---|---|
|
6% p.a. |
$966.64 |
$7,998.4 |
|
7% p.a. |
$990.06 |
$9,403.6 |
|
8% p.a. |
$1,013.82 |
$10,829.18 |
Note: Calculated using the Savings Car Loan calculator
A single percentage point could be worth nearly $1,500 over the life of a five year loan - at the time of writing that's about the same cost as return flights from Sydney to Japan!
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Vehicle Type | Maximum Vehicle Age | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Row Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.99% p.a. | 7.12% p.a. | $438 | Variable | New | No Max | $8 | $400 | $36,801 |
| Promoted | Disclosure | |||||||||
6.57% p.a. | 7.19% p.a. | $447 | Fixed | New | No Max | $0 | $250 | $37,506 |
| Promoted | Disclosure | |||||||||
5.66% p.a. | 6.45% p.a. | $433 | Fixed | New, Used | No Max | $0 | $275 | $36,404 | ||||||||||||
5.99% p.a. | 6.34% p.a. | $438 | Fixed | New | No Max | $0 | $250 | $36,801 | ||||||||||||
6.25% p.a. | 6.52% p.a. | $442 | Fixed | New | No Max | $0 | $195 | $37,116 | ||||||||||||
6.29% p.a. | 6.48% p.a. | $442 | Fixed | New | No Max | $0 | $0 | $37,165 | ||||||||||||
9.49% p.a. | 10.93% p.a. | $490 | Variable | New, Used | No Max | $13 | $395 | $41,174 | ||||||||||||
9.99% p.a. | 10.41% p.a. | $498 | Fixed | New, Used | No Max | $0 | $295 | $41,822 | ||||||||||||
6.74% p.a. | 7.57% p.a. | $449 | Fixed | New, Used | No Max | $0 | $595 | $37,714 |
Picture by Erik Mclean on Unsplash
Denise Raward
Harry O'Sullivan
Jacob Cocciolone
