What you need to know about car yard finance

Have you been thinking about upgrading your vehicle? Or perhaps the thought of driving away in a brand new car excites you? You may or may not know that we have offered car loans for quite a while. As with any home loan, we know how important it is to get a great deal on car finance and with over 24 lenders to choose from, we can confidently find a competitive deal that you are happy with.

Sometimes finance through a car yard is presented to you as a cheap and easy solution, but can actually end up costing you much more in the long run. People often find it confusing when they are offered 2% or even 0% finance from the car yard, which in turn sounds great, but scratch the surface and the deal may not be so generous after all, here's why:
• 0% interest finance deals are a type of subvention agreement - the cost of the finance is already loaded into the car sales price
• This gives you much less opportunity to negotiate on price
• You could end up paying more for your car than if you buy without dealer finance

'But so what - what difference does that make? You'll be paying the same amount at the end of the day, right?’ The problem comes in about 3 years’ time because most of these offers are normally only for 3 years. Think forward about when it comes time to value your car for a trade in or new finance.

Let's say you bought a $40,000 car, but ended up paying $45,000 (for the interest being built into the car price). That car will depreciate to say 50% of its value within 2-3 years, so let’s assume it's only worth $20,000 in 3 years’ time. The car will be worth 50% of the original value, not what you paid for it. This could leave you with the serious issue of "negative equity" - you will owe more than the car is worth - this is a problem. The only way out is you would contribute more money towards the next car purchase.

Another thing to watch from time to time is that some car yards will only disclose the "base" interest rate, not the rate you will actually be paying. They will add in commissions and insurances on top of the base rate which will push the 'real rate' of the loan (and the repayments) higher.

So, to avoid this hidden tricks, try shopping around and find a car yard not offering the cheap rate and see what you can save on the purchase price. Also, we advise to obtain a pre-approval before you go shopping (just like we advocate when looking for a home). That way you will be in total control - no tricks, no confusion, no emotive buying. All you need do is get the best price for the car. The loan can be settled and the new car all yours in 24 - 48 hours - it's very fast.

Posted in: Car loans & leasing

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