July 17, 2014
What is 0% finance for a car loan and are they as attractive as the dealers make it out to be?
We have all seen the advertisements for great finance rates within car dealerships and it is becoming more and more popular for the large car manufacturers to offer 0% finance when you purchase a new car and 0% sounds great right, but where’s the catch?
The 0% finance that the dealerships are offering is often referred to as “sub vented finance”.
Sub vented finance is where the manufacturer pays back the interest amount to the finance company who is providing the loan. This therefore requires the dealership to make enough profit on the sale of the car to cover the interest cost as well as their normal profit margin – How do they do this? It’s simple, YOU pay more to buy the car!
When purchasing a car on this 0% finance package through the dealership it is normally limited stock, the price is normally fixed and there is no room for negotiation, which means you, as the customer, pay full retail price for the car to cover the interest “you didn’t have to pay”.
Beware the fine print
0% finance deals can also be very restrictive with the terms and conditions of the finance policy. The loan is often a shorter term and can have large balloon payments at the end of the period, which may not suit everyone’s budget, and there are normally early exit fees if you wanted to sell the car or get out of the loan during this period.
Some dealership finance ballons also include the interest they would have received during the 0% period within the final balloon payment – so in effect you never actually received a 0% loan, just a deferred payment of the interest! The lending conditions around entering these type of finance contracts generally are hard for most consumers to read and understand and it is really not in the car salesman’s best interest to explain all the fine print to you, after all, the salesman wants to sell you the car for the most amount of money possible, not make sure you have the best loan to suit your individual financial circumstances now and into the future.
How to get the best deal possible
It’s easy, get your car finance arranged independent of the dealership – You wouldn’t let your finance broker or bank sell you a car, so why would you let a car salesman arrange your finance?
This way, not only can you negotiate the best price with the dealer as if you were paying upfront for the car (Which will secure a better deal) you can also be sure that the person who arranged your finance has no conflict of interest with the dealership – Your independent finance broker only cares that your car finance is in place and you have gotten the best loan possible, not who you buy the actual car off and what the dealership's profit margin has to be.
In summary, if you choose a 0% finance option through a dealership, you can often end up paying much, much more than you would have if you had arranged your finance through an independent party.
We can help
The team at Mortgage Choice Unley can help you with a wide range of car and asset finance loans through our panel of lenders, often with same day approval and even settlement, exactly the same as if you were to go through a dealership.
So why not contact us today to see how we can help you to get the best deal on your next car loan.
Michael Romeo & the team at Mortgage Choice Unley
Michael Romeo, Dip. FS (FMBM) | Manager
Mortgage Choice in Unley
Ph: 08 8273 7970, Fax: 08 8273 7999
Suite 6, 13-15 King William Road, UNLEY SA 5061