0% car loans - there is always a catch

July 25, 2013
Jason Puxty

They say there is no such thing as a free lunch, and while that might not always be true, there is no such thing as free money.

Various car lenders are offering interest free, or very low interest loans in order to attract buyers.  At a time when vehicle manufacturers are struggling with sales, it makes sense that they are offering incentives.  

Whilst you can save money on the low or zero interest loans, Barbara Drury from the Sydney Morning Herald writes that it can actually cost you more to buy than if you took out a personal loan.

Like all businesses, motor vehicle dealers need to make money to survive and handing over free credit is not going to make them money, unless they offset it in another way.

In her article, Drury quotes research in which a vehicle purchase with 0.5% interest rate was able to be negotiated at $47,500, while the same model was able to be purchased for $40,700 with another dealer when not relying on the cheap finance. 

Even with a standard car loan, the buyer was better off than if they had purchased the vehicle with the 0.5% interest rate.

My recommendation would be to negotiate both the purchase and any trade price first without discussing the cheaper interest rates.  Once you have agreed on a "change over" price, then move to discussions about the cheaper interest finance.

Compare the total cost difference and go with the one which saves you money.

Mortgage Choice motor vehicle loans are currently at 9.9%, so you can use that as a guide when doing your calculations. 

If you want help working out the overall costings of both options, give me a call on 0427 578 989 and we can crunch some numbers.

You can read the full Sydney Morning Herald article here.


Posted in: Car loans & leasing

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