Feature Articles
From 2012, we now list our articles in our Blog. Read the latest here
06/06/2010
Feature - Cheap Car Finance? There is a catch….
More than likely you’ve seen and been tempted by advertisements offering car finance, sometimes for less than what you pay on your home loan. This isn’t restricted to the second hand car yard either, even the major brands will from time to time offer seemingly unbelievable deals.
So how do they do it and is it too good to be true?
Financiers generally use the three-year swap rate as a guide for their interest rates as the average life of a lease is 3.2 years. This is a financier’s cost of funds to which they add a margin to make their profit. If the dealer’s rate is very low then it is likely that the dealer and the financier are subsidising the interest rate as they can’t raise money at a cheaper rate than everyone else in the market. In short, the subsidy is most likely in the inflated cost of the vehicle and therefore, in effect, paid by the purchaser.
Therefore in effect it is too good to be true. So, how can you get a win-win?
Make sure that you get the best cash price for any vehicle you are looking to purchase. If the dealer ever broaches the topic of offering cheap finance then you know there is definitely room to move on the price of the vehicle. Unless the vehicle is highly popular (or has already been heavily discounted) there is always the opportunity to get yourself a better deal.
Be especially careful of dealers inflating the cost of options and extras ($500 floor mats anyone?).
Once you manage to reduce the price on the vehicle you are purchasing, get your quote from the dealership, and other sources too. Why?
In all likelihood, the dealer will do their best to recoup some of the discount on the car through their finance. By shopping around for finance, just like you did for your vehicle, you can get a win-win out of the deal.
Prior to Westpac, Ewan was self-employed as a commercial finance broker and also has experience in accountancy and with other major banks.
Important Note: These articles have been prepared for general circulation and are circulated for general informational purposes only; these articles should not be regarded as business or investment advice. The articles represent the views of the writers and are subject to change without notice. Additionally, while every care has been taken in the preparation of the articles no representation or warranty as to accuracy or completeness of any statement is given. An individual or organisation should, before any business or investment decision is made, consider the appropriateness of the information in this document, and seek professional advice, having regard to objectives, situation and needs. This document is solely for the use of the party to whom it is provided.
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