Should I Finance my New Car Through the Dealer?

When you’re in the market for a new car, you might not have cash to pay upfront. If you’re like most Canadians, you accept financing from the dealership. But is this the best option? As it turns out, a bank or online loan provider might give you better rates — saving you money down the road.

Canadian Preference for Dealer Financing

Global News reported in May that two-thirds of Canadians applied for financing at the dealership when they bought a new or used car. That’s a high number, especially when you also consider 70 percent of car buyers only look at options from one lender before agreeing to a loan.

Why are so many willing to get financing from the dealership? Promotions and discounts — like those “zero percent” rates one so often hears about. But those good deals often come with a catch. Zero percent interest might only be available to those with excellent credit. Sometimes, the financing comes with a condition that you pay off the car with one lump sum payment after a certain period of time. If you’re promised no payments for the first three months, you’ll just end up paying for those months later, at the end of the term. And that term? Sometimes it’s as long as seven or eight years, or longer than the life of your vehicle. That means you could end up with a sizeable loan balance when the sale or trade-in value of your car has declined significantly.

That isn’t to say dealer financing doesn’t work for everyone. For some, it can be a great deal. But like with any major financial transaction, it’s always essential to read the fine print.

Choosing Alternatives: Banks or Online Lenders

But even before reading that fine print, you might want to consider other sources of financing. There’s your bank, which may loan you money if it’s secured against the vehicle. Generally, more expensive cars may get you a car loan. A personal loan, on the other hand, gives you less to buy with, but it’s also not secured against the car. A personal loan in this scenario may have more finance charges — and therefore cost you more — than a bigger ticket loan that’s secured against your new vehicle.

Then there are also multiple lenders with whom you may or may not already have a financial relationship. allows you to compare several different car or personal loan options at once. Just key in how much you want to borrow and some other basic financial details, and you’ll get a few financing options.

What’s the benefit of going to a lender other than the dealership? There’s a good chance the loan terms aren’t tricky or confusing. You may get a better rate that saves you money in the long run. Even if you do decide to get financing through the dealership, if you go in with other quotes, you have a new way to negotiate.

The bottom line: do a bit of research before committing to a monthly payment that lasts for a few years. Chances are you can find yourself a better deal.

Related Topics

Personal Finance

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