Low Rate or 0% Finance – There is no Free Lunch!
We have all seen the constant marketing on behalf of new car manufacturers and car dealerships offering discounted low interest rates if you buy a specific make or model of new car. These offers may have interest rate offers as low as 0%.
Like most things in life, there is often a catch and as always “conditions apply”. You must always “read the fine print”. These catchy Ads are skilfully prepared marketing tools designed to draw you into the car dealer showroom. The rest is up to the highly trained dealer sales staff and your willingness to buy and believe the promotion. These promotions are an alternative to discounting the price of the new car or similar inclusions. Some of what may or may not be in the fine print includes:
- Full Retail Price – You will most certainly not be able to negotiate the price of the new car. The interest rate discount offered is an alternative to the manufacturer and the dealer discounting new car price. Be prepared to pay full retail price. A higher price means you borrow more. When you try to trade-in later you may owe more on your loan than the vehicle is worth.
- Large Deposit – In many cases a large deposit is required – usually 20% of the cash price or more is required to have finance approved.
- Higher Instalments – Often the discounted rate offers are only available on shorter loan terms – usually 36 to 48 months.
- Finance Subsidy – No bank or lender is commercially able to provide loans at these discounted low rates or 0%. The car manufacturer or car dealer pays a subsidy to the bank or finance company as compensation. Like most things in life the user pays. They just don’t realise it!
- Balloon Payment – These may be offered to lower the monthly instalment, but a balloon structure often negates the interest discount so you end up paying more in interest than you would have if you had taken a traditional loan.
- Lower Trade In Value – You are very likely to be offered a much lower trade-in value to compensate the dealer for the discounted interest rate offer.
Before you get carried away with these offers to lock into a low rate or discounted interest rate through the dealer, make sure you have investigated all of your other options and types of car loans. Many banks and non-bank lenders have excellent loan options for a new car that may save you more money than the dealership zero percent interest incentive. Not only will you be able to shop around to find a competitive rate, you will have more flexibility in car price and trade-in negotiations.
There is no “One Size Fits All” – it is always worth getting the advice of an expert. Most banks and non-bank lenders offer car loans that meet the different needs of borrowers, such as low doc loans and financing for borrowers who have a less than stellar credit history. These types of loans and lending institutions are definitely worth looking into before you lock yourself into an offer with the dealer that looks great from the outside, but is not necessarily financially beneficial once you examine the inside.
We recommend that before you set out to buy, that you arrange pre-approval as this will almost always improve your negotiation options.
Please call us any time for advice and discussion – we are here to help you!
Contact: Alan 0424 185 442 or Gayle 0411 494 800