Dealer Finance? How you can save thousands on used car finance
When you find the perfect used car, it is very tempting to just click the apply for finance button on the advert and be done with it. But that could be a costly mistake, as it often comes with a hidden cost: a much higher interest rate.
Whilst overall representative APRs at dealers hover around the 11% APR area in the UK, there is a lot of variance from dealer to dealer, model to model and even within very similar cars. Brands like VW, BMW and Audi give the dealer guidelines but they have leeway in the maximum rates they charge.
By taking a moment to look at independent finance, you could save enough money to pay for your insurance and servicing for the next few years. Or even a little holiday!
Why is dealer finance often more expensive?
If you look at a car from a major dealer on sites like Auto Trader, you will often see APRs of 10.9%, 11,9% or even 13.9%. This is significantly higher than the 8.9% Representative rate currently offered by specialists like Prefinance.
The reason for this gap is simple. Dealers take a commission for every finance deal they sign you up for. That commission is essentially a fee you pay for the convenience of doing everything in one place. When you multiply that extra interest over a four-year deal, the numbers start to look very big. The APR is a reflection of how much commission they are making. Between 8.9% and 9.9% is about right for deals under £50k.
We also have a fee paid to us for introducing you to the right lender. But because we operate online and use AI to quickly gather information about the deal, we save on people and processing costs. Then we pass you to the right broker who will still give you the personal touch and an experienced finance broker.
Real world finance examples: The cost of convenience
We have looked at a few popular models currently for sale to show you exactly how much extra the dealer's rate could cost you. Quotes based on 4 year PCP agreements and 10,000 miles per annum.
1. 2022 Volkswagen Golf R-Line
Even on a mid-sized hatchback, the difference in interest rates adds up to over £3,000.
Feature | Prefinance | Sytner |
Cash Price | £24,450 | £24,450 |
Deposit | £2,450 | £2,450 |
Monthly Payment | £380.01 | £445.48 |
APR | 8.9% | 13.9% |
Final Payment (GFV) | £9,553.00 | £9,553.00 |
Interest Saving | £3,142.56 | N/A |
2. 2023 BMW X3 M40i
On a higher-prices SUV, the dealer tax becomes much more obvious. You are paying an extra £126 every single month just for using the dealer's finance.
Feature | Prefinance | Sytner |
Cash Price | £44,950 | £44,950 |
Deposit | £4,500 | £4,500 |
Monthly Payment | £696.84 | £823.11 |
APR | 8.9% | 13.9% |
Final Payment (GFV) | £17,671.00 | £17,671.00 |
Interest Saving | £6,060.96 | N/A |
3. 2023 Audi Q5 Black Edition
With the Audi, the total saving is over £5,000. That is money that could be sitting in your bank account rather than the dealer's.
Feature | Prefinance | JCT600 |
Cash Price | £39,950 | £39,950 |
Deposit | £4,000 | £4,000 |
Monthly Payment | £646.61 | £758.82 |
APR | 8.9% | 13.9% |
Final Payment (GFV) | £14,138.00 | £14,138.00 |
Interest Saving | £5,386.08 | N/A |
4. 2023 BMW X3 xDrive 2.0 X Line
With this BMW X3, the total saving is nearly £1800. Whilst the dealer's rate is OK, this still shows how just 2% APR difference could cost you a lot of money in the long run. So compare away!
Feature | Prefinance | North Oxford BMW |
Cash Price | £34,650 | £34,650 |
Deposit | £4,000 | £4,000 |
Monthly Payment | £489.82 | £527.22 |
APR | 8.9% | 10.9% |
Final Payment (GFV) | £15,677.15 | £15,677.15 |
Interest Saving | £1,796.20 | N/A |
Extra interest on the Final Payment
If you are buying a car on PCP, the interest rate is even more important. This is because you are paying interest on that large Final Payment (GFV) for the entire length of the loan.
Because that £14,000 or £17,000 lump sum sits there untouched until the end of the deal, a 13.9% interest rate is eating away at your budget every month. By switching to 8.9%, you are drastically reducing the cost you pay to the bank for that final portion of the car's value and the piece of mind that comes with the GFV.
What should you do?
The choice comes down to what you value most. If you want to walk into a showroom, sign one piece of paper, and drive away without a second thought, then dealer finance is fine.
There is a lot of variance within dealers. They have promotions (Sytner often have a 9.9% APR on some cars, but can charge a lot more on the bulk of their cars) and deposit contributions (although £250 off your finance when you are being overcharged by £5k isn't a lot!) But overall, it's still considerably more expensive. You can see the average APR on our make & model pages, for any brand; for example https://prefinance.co.uk/best-finance-deals/bmw
So our advice is to compare away. With Prefinance you can use the URL (the web address for the car). As long as it has a full finance example, our tech should be able to grab it and compare it. You can also enter a registration number and a make and model. Our finance calculators are free to use.
But if you want to be smart with your money, it pays to shop around. Getting an independent quote from a provider like Prefinance doesn't take long, and as the tables above show, it can save you between £3,000 and £6,000 over the life of your car. In most cases, that is a massive saving for just a few minutes of extra work.
