Private sale car finance vs car dealer finance

When you’re buying a car in New Zealand, you usually have two key questions to answer: Where are you going to buy it, and how will you pay for it? When it comes to answering the first question, most people have to weigh up whether they will buy a vehicle privately from another individual or through a dealer. As for the second question, where you purchase may have an impact on how you approach the finance, particularly if you’re planning to take a loan.

Here’s what you need to know about finance for private sale car purchases and car dealer finance, so you can make an informed decision.

What is a private sale?

A private sale is one where you buy something directly from an individual. In this case, you’re buying a vehicle from another person who has listed it for sale.

It’s common in New Zealand to buy a car privately through platforms like Trade Me or Facebook Marketplace, or even through word-of-mouth or seeing a vehicle on the side of the road.

If you’re buying privately, it’s usually up to you to find a lender and obtain a suitable loan. There are a number of lenders who offer loans for private vehicle purchases. They may sometimes pay the money directly to the seller and use the car as security. At better finance^TM, we can help you to understand what your options might be if this is the path you choose to pursue. 

What is car dealer finance?

When you buy from a car dealer, you’re purchasing from a registered business. It is common for dealers to also offer to arrange finance either on-site or through dealer partners. In New Zealand, car dealers often act as intermediaries for a third-party finance company.

You might find that when you take out dealer finance, you are offered some other add-ons such as warranties, ongoing checks and servicing or other optional extras.

Pros and cons of buying via private sale.

There are a few things to think about when you’re deciding whether a private sale is an appropriate option for you.

Pros: 

• You may pay a lower price via a private sale. An individual doesn’t have all the costs of doing business that a dealer has, and also doesn’t offer any of the follow-up service and warranty care that you might get from a dealer.
  
  

• You may find a larger number of cars at a lower price point than you would get from a dealer.
  
  

• There may be more room to negotiate. It’s up to the seller what they want to sell the car for.
  
  

• There is a wide range of vehicles for sale privately. While dealers might mostly stock newer cars or a large number of a certain model, when it comes to private sales, you can often find a large array to choose from.

Cons: 

• There is no Consumer Guarantees Act protection. Private sellers also do not have to comply with the Fair Trading Act. You don’t have any recourse to go back to the seller to ask them to fix anything unless you bought it on the basis of false information, money was owed on the vehicle, the seller didn’t have the right to sell the car, or they should actually have been registered as a vehicle dealer
  
  
• As a buyer, you’re responsible for all the pre-purchase checks required. You’ll usually need to book a mechanical check and also check that there is no money owing on the vehicle.
  
  
• You may need to arrange finance ahead of time to be sure that the purchase will be able to go ahead.
  
  
• There may be a higher risk of unexpected repair costs. 

Pros and cons of dealer finance.

On the other hand, there can be pros and cons to buying from a dealer, too.

Pros:

• It’s convenient. You can usually arrange your car purchase and your finance in one go, and it’s the job of someone who is employed at the dealership to sort it out for you. You’re not trying to get it done alongside everything else you have to manage, although you still will need to complete the application, provide all the required information and liaise with the lender through the process.
  
  
• There are consumer protections under New Zealand law when you buy from a dealer. The car has to be of acceptable quality and fit for purpose. If it isn’t, you can ask the dealer to fix it or replace the vehicle, or give you a refund.
  
  
• Vehicles are often inspected and serviced. When you buy from a dealer, the vehicle will usually have been tended to before you take it home, often down to a thorough clean. You may find there is ongoing servicing provided as part of the package, too.
  
  
• The relationship of the dealer with the lenders they refer to may mean that the finance application is processed more quickly. 

Cons:

• You generally pay a higher purchase price for a vehicle bought from a dealership.
  
  
• If you take the loan offered by a dealer without looking at your options, you may find you’re paying a higher interest rate than you could otherwise have found.
  
  
• Your overall loan may be larger if you take optional add-ons, such as servicing plans or other extras - although this should give you additional benefits, too.
  
  
• If you have a balloon payment structure, your loan may end up more expensive overall.

Costs to compare beyond the sticker price.

When it comes to a car, it’s not just the price advertised on the window that matters. The interest rate you are charged and the total interest you pay over the course of your loan also make a difference. In general, the longer the loan term, the more expensive your loan may be.

It’s important to be clear what loan fees and early repayment charges might also apply, so that you know what the total cost of the loan is likely to be. If you add on any optional extras from the dealer, what does this add to the total cost of the purchase? You’ll also need to think about ongoing costs of ownership such as insurance, registration, warrants of fitness and servicing.

How does finance work differently in each option?

While you can borrow money to buy a car privately or from a dealer, the way it works can differ in each case.

With a private sale, you’ll usually need preapproval ahead of time. Then, when you decide on the car you want to buy, the funds are paid directly to the seller. If the lender will be using the car as security, this means it can take the car and sell it to clear your debt if you stop making payments.

In a dealer situation, the finance approval is often done via the dealership. The car will most likely be used as security. You may find that the loan is a bit larger than the purchase price to cover some additional extras (such as on-road costs and any optional extras you have selected). 

Which option is better for different buyers? 

The most appropriate option often depends a lot on your individual circumstances.

First-time buyers:

If you’re a first-timer, you might be on a budget and want to save money with a private sale. But you might like the convenience of a dealer, and the peace-of-mind of consumer protections or warranties in place in case something were to happen to your car. 

Buyers on a budget:

If money is tight, you might think it’s best to save money by purchasing privately. You might also be looking to limit your borrowing, or to make sure your loan repayments are comfortably within your household budget.

 Self-employed people or contractors:

You might value a lender that has some flexibility to work with your employment situation. We can help you to look at your options.

 People planning to upgrade soon:

You might want to limit your borrowing or be able to repay your loan quickly so that you are not in negative equity when it’s time to make your next move.

Common mistakes to avoid.

Buying a car is an exciting time, but there are a few key things to watch out for.

• Choosing dealer finance without comparing alternatives: As with most financial decisions, it’s a good idea to consider your options when it comes to car finance. What sort of interest rates might be available? What loan terms are on offer? At better finance^TM, we can help you look at what might be possible.
  
  
• Buying privately without mechanical or history checks: This can be a very expensive mistake. It's worth spending a bit of money up front to ensure that you’re not in for an expensive time down the track.
  
  
• Focusing only on monthly repayments: While it’s important to be comfortable with your ability to make payments, it’s the overall cost of your loan that can make a difference.
  
  
• Borrowing more than the car’s long-term value: While it may not be ideal to borrow so much that you end up owing more than the car is likely to be worth in a year or two, it can be quite common for this to occur. Looking at the asking prices of cars a little older than yours may give you some idea of what you might be in for, and help you decide whether you’re comfortable with that. 

Tips to make the right choice.

Here are four tips to help you make a suitable decision for your car finance needs.

• Get a loan pre-approval before shopping. This gives you some reassurance about what you might be able to afford to pay and helps you to hone your search. You won’t end up looking at cars that are out of your price range or miss out on vehicles that you might have been able to afford.
  
  
• Compare dealer finance with external lenders. Looking at the options available to you will help you to determine what might be appropriate.
  
  
• Obtain independent inspections for private sales. These checks are invaluable when it comes to making sure that you are buying a reliable car.
  
  
• Understand your total cost of ownership, not just price. There are likely to be a number of other considerations that you need to factor in, such as ongoing servicing, registration, and warranty costs, as well as things like the interest on your home loan and any fees being charged.

Frequently Asked Questions (FAQs)

Is car dealer finance always more expensive in NZ? 

No – it can vary a lot. The better financeTM team can help you look at what’s available and make a comparison.

Can I use a car loan for a private sale?   

Yes, there are a number of lenders who will offer loans for a private sale..

What protections do I have when buying privately?

You have fewer protections in a private sale. Sellers can’t provide you with incorrect information, they can’t sell the vehicle if money is owed on the car, they need to have the right to sell it, and they need to not be someone who is selling so many vehicles that they should actually be registered as a motor vehicle trader. 

Can I negotiate finance terms at a dealership?   

Yes, you may be able to.

Is one option better for my credit score?

No, as long as you make the repayments on the loan, the impact of your lending on your credit score is likely to be the same, no matter how the loan is arranged.

Ready to make a move?

When it comes to a private sale or the dealership route, no option is universally “better”.

The right fit for you will depend on your priorities. You’ll need to balance the affordability of the loan with the protections on offer to you and the impact on your long-term finances.

Use better finance™’s tools and expert guidance to compare car finance options
and choose the path that suits your budget and goals.