As car manufacturers are constantly competing for market share, they have taken this fight to the next level by offering cut price finance deals. Recently, we had Toyota offering 0% finance, VW offering 1.5% and Ford offering 2.9% - and so it goes on.
At face value, these finance rates are very cheap, in fact, cheaper than what you will be paying on your mortgage. So how do they do it you may ask? To qualify for the cheaper finance, the general catch is that you will be paying the full Recommended Retail Price for the vehicle, with no discounts. Hence, the profit margin on the vehicle sale will more than compensate for the loss on the finance transaction. I will give you a little example, an experience I had with a car yard in Sydney.
The vehicle I was interested in buying was $42,000 at full recommended retail price. By (very) slightly twisting the salesman’s arm, the price quickly dropped to $34,500. A saving of $7,500. If we were to opt for the 0% finance at the full retail price of $42,000, the monthly repayments would have been $700 per month over 5 years. However, if we assume a finance rate of 7.5%*, and with the purchase price of $34,500, the monthly repayment is only $687.02 over the same period.
*this rate is base on business use.
So how can we eliminate any disparities when it comes to car finance, and ensure that we are comparing apples with apples? When talking finance with car yards, or any finance brokers, do not talk interest rates. Simply ask the following questions amongst all your providers:
- What is the amount finance
- What is the loan term
- What is the dollar value balloon / residual at the end of the loan term
- What is the monthly repayment
With this in mind, and you are looking at buying a new car – best times to do so are; at the end of the month, end of June, end of December or start of January.
Hopefully, the above will save you plenty of money.
By Danny Luu