Car loan – dealer or house bank?


Anyone who decides to buy a new car is faced with the decision, if a cash payment is not possible, before deciding whether a loan from a dealer or the house bank is better. Because 0% financing, as it is often offered by dealers, does not have to (and often is) cheaper than conventional financing.

Does the effective interest rate decide?

Does the effective interest rate decide?

Generally, a credit recommendation, which loan is the better, is fairly easy to make across the board: Compare the effective interest rate and decide on the offer that is cheaper. Because the effective interest must include all costs that you may incur so that simple comparison is even possible.

Only: The 0% financing of dealers or the cooperating and actually behind them banks and car banks are often calculated cheaper due to hidden price premiums and discounts and thus a direct comparison with a conventional car loan from a bank or the house bank is (consciously) difficult to impossible.

With the popular 0% financing, discounts, which cash payers are often granted, usually disappear completely and the list price or respective local price is used as the loan amount! This basically hidden price increase is usually concealed by additional services, which ultimately only make up a very small proportion of costs in purchasing or manufacturing, for example in comparison, rather low-value bonuses and additional equipment.

Incidentally, this hidden price increase often includes not only the missing cash discount but also the retailer’s commission. Because hardly any dealer has the means and opportunities to directly grant a loan or offer to finance but offers this to his customers through a car bank or a cooperating bank, which of course also participates with a commission for “customer acquisition”,

Dealer loan and conventional car loan

Dealer loan and conventional car loan

To put it simply, it can be stated that the 0% financing is usually only possible by the fact that the purchase price for a dealer financing and a conventional purchase is different – and that can make a 0% financing more expensive than comparatively expensive bank loans.

A comparison is always worthwhile!

What can be saved in comparison often only becomes apparent if you are not afraid of it! Because with cash payment and skillful negotiation skills, depending on the manufacturer, discounts of up to 20% on the original list price are common – especially in the segment of strongly competing for small and medium-sized cars!

A price reduction of 20% would already correspond to 7,000 dollars with a list price of 35,000 dollars and thus saved additional costs, which would have to be exceeded by a conventional car loan!

Simplified example: With 0% financing on a vehicle price of 35,000 dollars, those 35,000 dollars must be repaid – but if you were to negotiate a discount of 20%, 7,000 dollars, you would have to “only” 28,000 with a bank within one Borrow conventional car loans and repay $ 31,025.16 over a period of 36 months, even with a comparatively high-interest rate of 7% which corresponds to a saving of around $ 4,000!

The advantage of negotiating

The advantage of negotiating

Where the money ultimately comes from, the trader does not know unless you tell him what would, of course, weaken your own basis for negotiation – even if you ultimately only obtain financing from a bank.

Important: If you really want to save, you have to prove not only negotiating skills to a dealer and wresting a limited-time (e.g. over several days) and binding offer but also to your house bank or another bank.

Although the Credit Bureau score and the credit rating cannot be changed at short notice, the car loan at a bank should always be earmarked – this means that the loan amount is ultimately tied to the purchase of the vehicle and the vehicle letter is required as security and at the bank must be deposited.

This small difference, whether it is earmarked or not, ultimately determines which interest rate you can get and negotiate and whether you would get a loan.