0% Car Finance - Don't get Caught

July 31, 2016
Ian Robinson

It is becoming very common to see manufacturers adverting 0% comparison rates on purchases of brand new cars. It is not until you get into the dealership until you find out of any “catches”. This form of finance is referred to as sub-vented finance.


What sub-vented finance means is that the manufacturer will pay back the interest to the financier from the profit of the sale of the car, which means the manufacturer, needs to keep enough profit margins from the sale price to be able to cover the loss of interest. This means the vehicle price may not be negotiable, or it can only be discounted to a certain value if you were taking up the 0% finance offer.


Quite often the dealership will openly advise you of the difference in prices if you opted to take up the finance offer, or not. A dealership knows that half the sale is getting people into their dealership and then they need to create the urgency when face to face with a customer and they will do their best to get a commitment from the customer before the customer can get home to do their own research.


You will find that very limited information will be given over the phone, as the salespeople are trained to only give what is needed and if the client requires more information, they will have to go into the dealership.


The 0% comparison rate advertising campaigns are just another way to get people into their dealerships, creating more opportunity for sales. Some people take up the offer and some don’t, but still buy the car from that dealership without taking up the finance offer. This also gives the dealership the opportunity to attempt to upsell other products, such as insurances, warranties and aftermarket products to increase the overall margins.


You also need to be very cautious if you have a trade in, as often this will be used as a tool to retain profit margins, where the dealership will undervalue your trade to make up any other loss, so it is good to go in armed with what a realistic trade value is.


The finance offers will usually come with some restrictions, which may not suit your budget, as they may only offer shorter loan terms, or they make it a condition that you need a large deposit to qualify for the finance special. The reduced term is to minimize the loss of interest, as is the deposit, but it is also in place to make it harder to qualify as not everyone can afford a loan over a shorter term and not everyone has the large cash deposit that is required.


If the customer then falls outside the qualifying criteria, this gives the salespeople the opportunity to sell as they normally would, including the car salesman, the aftermarket consultant and the Finance & Insurance Manager (or referred to as the Business Manager).


The object was to get those extra people into the dealership and create more opportunities to still maximise profits of those that don’t qualify and for those that do, the deal may not be that great, as they pay more for their car on restrictive finance terms, but the dealership has also been given the opportunity to upsell add-ons.


As many people are so focussed on rate, proper research is not done, or they have got caught up in the moment of the test drive and excitement of buying a new car and fallen for the traps. Here at Mortgage Choice we can provide obligation free quotes on finance and brand new cars, which can really assist whether your overall car and finance package is the best available.


A good example is a purchase price of $23000 over 36 months at 0%p.a. will cost you more than the same car with a purchase price of $20000 over 36 months at 7%p.a including fees and charges and there are less restrictions when you have negotiated the car and the finance separately.


Make sure prior to accepting any of these 0% finance offers, you get a realistic sale price of the vehicle you are buying, a realistic trade value and see what other finance options are available, then compare your monthly repayments side by side, with the same deposit and terms to see which option is really the cheapest.


Posted in: Car loans & leasing

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