There is a lot of advertising from many car manufacturers offering really cheap interest rates on car loans. What most people don’t know until they get into the dealership is all the restrictions and criteria in order to obtain these super low interest car loan rates.
In the majority of cases the manufacturers are using the main stream automotive financiers, as there are only a few manufacturers left that have their own finance division. If you read in the fine print, the disclaimer should advise who the lender is and in a lot of the cases, they are some of the major banks.
That brings upon questions. If you are truly getting these low interest car finance rates with no catches, then why aren’t these same banks offering lower interest rates on home loans, personal loans, credit cards or even car loans directly through them?
The answer is quite simple, there are catches and the banks cannot offer these rates directly, so their losses need to be recouped somehow. You need to proceed with caution and weigh up all options before impulsively purchasing on interest rate alone.
The financier must be paid back somehow for any lost interest from the manufacturer or the dealership, and the manufacturer or dealership must be getting this money from somewhere, which is why the most common restriction on these types of promotions are that the price of the car is not negotiable, or can only be negotiated down to a certain limit, even though they may have more room to move, if there was no loss from the finance.
Overpaying for a car, just to get a low interest rate can cause problems.
Most people are aware that when you buy a new car and drive out of a dealership, the value has declined straight away, not only due to becoming a used car, but also when purchasing a new car, you would have paid On Road Costs, Government charges and also Dealer Delivery, which add no value to your new purchase.
If you want to payout your loan early through trade in of your vehicle, without overpaying for your car, you could have a shortfall between your loan payout and the value of your car, referred to as “negative equity”. This shortfall would be inflated when overpaying for a vehicle just to get a low interest rate and should be a consideration prior to reviewing all options available.
Other common criteria would be restrictions on how many years you would like to do the loan, as the shorter the term, the less interest the manufacturer or dealership is losing, or they may request a large cash deposit and these criteria may not be suitable for your own budget which you may have had in mind.
In many cases, it may be cheaper and less restrictive to negotiate the car and finance separately and the best way to compare apples with apples, is to find the cheapest price for the car (a good car buying service such as the CarLoans.com.au Car Buying Service can assist with this) and then find the best finance deal outside of the super low interest rates on offer and compare the payments with the same terms (e.g. same deposit, same term of loan, etc) on the negotiated finance and car price against the “all-in-one” dealership offer with the low rate and see which option has the cheapest repayment, as this will be the cheapest option for you. Then if the super low interest auto finance rate offer is not the cheapest, you can then adjust the terms of the finance to the way you need it for your own personal budget.
CarLoans.com.au can provide you a free car loan assessment, this assessment will determine what loan product suits your needs best as well as providing you with the interest repayments - click here to get a free assessment