0.0% Car Finance, is it Too Good to be True (Smoke & Mirrors)
0.0%, 1.0%, 1.5% or even 2.0% car finance is a one of the latest marketing strategies car dealers/manufacturers are currently offering in order to obtain your business.
Is it too good to be true?
Usually when something is too good to be true, it’s not and in this case it is most definitely not (smoke & mirrors)! Car dealers/manufacturers are offering finance below the cash rate, currently 2%. How is it that they are able to sell finance at an interest rate less than what it costs them?
Well, they don’t. What they are doing, is rolling their losses from the promotional rate into the sale price of the car. When it comes to car finance, lenders do not complete a valuation of the motor vehicle as happens when you are arranging a home loan and unlike a home loan they will lend you 100% of the purchase price plus the acquisition costs.
So, we as the consumer are paying more for the car in this circumstance than we would if we were getting finance elsewhere or paying cash.
There is another problem. When you are arranging finance for a car, the lender/broker must disclose to you the actual interest rate; the comparison rate and all fees associated with the loan so that, you the consumer, can understand the true cost of the finance.
With this new strategy, the car dealers/manufacturers can charge whatever interest rate and fees they like without having to disclose same as it’s rolled into the purchase price of the car.
Yes, they will disclose to you the interest rate 0.0% and fees in the finance portion of the deal, but this is not the true cost as you are being informed only of their promotional rates NOT the true rate. Again, smoke and mirrors.
If you are looking for a new car and considering one of these promotions, I would recommend that you first negotiate with the dealer giving the impression that you are going to be purchasing the car with cash.
Once you have agreed on the price under a cash transaction, then ask for the finance option so that you can compare the difference. The dealer will most likely back away from offering you finance at the promotional rate if it is being provided at a loss. However, you will more than likely be offered finance at market rates. If this is the case, then make sure to ask them to put the following in writing:
- the loan amount;
- the loan term;
- the monthly repayment; and
- all fees.
I am happy to do a quick assessment of the offer to determine if it’s competitive in the market place and whether you would be able to get a better deal elsewhere, so don’t hesitate to contact me.
Declan Hanratty – Managing Director
M: 0409 089 456 F: 03 9416 1916 ABN: 19 880 907 430 POSTAL: PO Box 1551 COLLINGWOOD Victoria 3066 MFAA Membership No. 50217 Australian Credit Licence No. 383120 Credit Ombudsman Service No. 412201