Why That 0% Car Loan Might Catch You Out

You’ve just spotted that new car you always wanted but it’s a stretch beyond your current budget. To sweeten the deal, the dealer is prepared to offer an interest free loan. This must be your lucky day, right!? I mean, who wouldn’t want to save themselves thousands of dollars in interest expenses? It all sounds convincing but is the decision as straightforward as it sounds?

While a growing number of car manufacturers offer such deals through their dealerships, that’s not indicative of the deal’s popularity. The reality is, that in many instances, such an arrangement will end up costing you more. You might ask, “How will I be worse off?”. Well, as a form of sub-vented finance, the dealer will be paying interest on your behalf to the financier – which, as you guessed it, means dealers would be remiss to their employer(s) if they didn’t try to recoup these lost earnings.

Source: Interest.com

Take for example, the price of your shiny new car. A 0% interest loan is usually based on the full (retail) price of the vehicle. In cases where there is some movement, it’s still within a limited range. Instead, if one was able to negotiate the sale price of the vehicle and bring the price down, it’s conceivable that you would save more money – depending of course, on your ability to make the repayments. In August last year, News.com.au published findings that indicated a Nissan Pulsar was $2,541 cheaper across three years when purchased with a regular loan at 8%, with interest payments offset by a $5,000 difference in the vehicle’s purchase price ($19,990 vs $24,990 when bought with 0% finance). Ensure that you enter the dealership with knowledge of the vehicle’s ‘going’ market value, and how much you can buy it elsewhere.

You’ll also need to remain wary of the terms associated with an interest free loan, with reduced scope for flexibility meaning you should pay off all (or as much of) the loan within the interest free period – often three years, at which point a balloon option might become available. The balloon option is one method of reducing interim repayments but means a large lump sum is due at the end of the deal, which may require further financing (at a less than desirable rate). Keep an eye out for any references to the deposit sum, which could be significantly higher than normal to ensure the dealer’s interest payments (on your behalf) are minimised.

Don’t forget, if you’re thinking about trading in a vehicle to offset the new purchase, it’s likely your vehicle will be undervalued so the dealer can attract a higher margin on the resale of your trade-in. In this instance, it goes without saying that you should undertake appraisals on your vehicle’s trade-in value. There are even some instances where dealers will ‘guarantee’ a specific trade-in value in the future when you look to upgrade again. What this does however, is ties you to that dealer and reduces your flexibility to negotiate.

Interest free finance campaigns are intended to boost foot traffic through dealerships, at which point the ‘hard sell’ begins. It’s an effective form of marketing for dealers and manufacturers because they can apply different sales strategies to customers who qualify and take up the offer, with those who don’t – but ultimately, that doesn’t mean it suits the needs of all customers equally.

When Should I Consider A Novated Lease For My Staff?

Novated leases are a very popular way for employers to reward their best staff members. It’s such a part of Australian business culture that attempts to change the system a couple of years ago created a very big stir indeed.

If you are an employer, it’s not compulsory to offer your workers a novated lease as part of their salary package. However, it’s an option you might want to consider. But when is it a smart option for you to offer this sort of deal?

It’s time to ask yourself a few questions to help you make this decision.

  1. Is he/she a worker who deserves some sort of reward? If yes, then you can go to the next question. Obviously, a drone who shows up late, leaves early and spends loads of time hanging around the water cooler gossiping, or even if their performance is only mediocre, you probably shouldn’t reward them.
  2. Have you spent a lot of time training this employee and/or do you feel that you’d be lost without him/her? Setting up a novated lease encourages your office Superman/Superwoman to stay with you rather than transferring to another job. They won’t just stay because you’ve been nice; they’ll also hang around so their car repayments will be taken out of their pay packet before tax rather than afterwards.
  3. Does your employee do a moderate amount of work-related travel? Here, things get a bitYou may or may not encourage use of the logbook system when setting up a novated lease with your employee. However, if your employee does loads and loads of work-related trips, he or she will probably not benefit all that much from a novated lease and may not consider it to be much of a reward. You may want to consider leasing a company car that they use for work purposes only, although this will depend on the size of your business and the nature of your work.
  4. Do you have a fairly tight budget? Novated leases are a real boon to not-for-profit organisations or businesses with tight margins, as there’s no overhead cost to theYou may not be able to give your employees a raise to reward them if the funds aren’t there but you can set up a novated lease for them instead.
  5. Do you want your employees to do some work-related driving but want to save hassles and paperwork regarding assets and liabilities? A car financed through a novated lease scheme doesn’t count as an asset or a liability for you and your company, meaning that you can leave these vehicles off the balance sheet.
  6. Do you want to claim an extra input tax credit? Of course you do  every little tax credit helps! You get to claim an input tax credit on any GST paid as part of a novated

Of course, setting up a novated lease for your employees has lots of ins and outs, and you probably have other questions you want to ask about the process. But that’s what we’re here for  ask us whatever you like!

Should You Do Your Own Car Maintenance?

When you take out a loan to buy a new car, one of the things that you should always factor into your budget so you can find the right amount for the weekly/fortnightly repayments is the maintenance of your car. It would be nice to think that cars never broke down or gave any mechanical trouble, but this isn’t the case.

A number of people wonder if they can save a few dollars on their car maintenance by doing their own car repairs. The answer to this question is yes and no. Some things can be done by a handyperson with a good set of tools but other things require an expert. If you attempt to do expert-only repairs, there is a high chance that you will end up causing more damage, which will leave you facing a bigger bill from the mechanics.

So what bits of repair and maintenance are smart moves that you can do yourself to save the cost of labour?

  • Changing the oil. Just make sure that you drain the oil out of the right compartment if you have an automatic transmission so you don’t leave the gear system without lubrication. Get this wrong and you wreck the engine. Also remember to put the plug back in the hole you drain the oil out of before you pour new oil in. If you don’t do this, you’ll waste a lot of perfectly good oil and some of your money.
  • Changing the air filter. Another fairly simple task that every driver can learn how to do rather than handing their car over to the mechanic.
  • Changing the fuel filter. Another comparatively simple task.
  • Changing the spark plugs.
  • Changing fuses. You will need to consult the manual (or look online) if you don’t know where the fuses are kept, but this can be the solution if one of your lights decides to die.
  • Replacing the drive belt: Take a good look at it before you take it off, noting where it goes as well as how worn it is. Take photos if your visual memory isn’t brilliant. You’ll need a few tools and this is more of an intermediate level task.
  • Replacing the brake pads. This is a bit more advanced but you can still do it without needing a trade certificate in auto mechanics. You will need to take the wheel to do this.
  • Replace your windscreen wipers.
  • Cleaning up corrosion around the connection points on your car battery. Remove the wires first using insulated pliers, then use a wire brush to get the corrosion off. Put the wires back on where you took them off from.
  • Replacing the bulbs in your lights. You probably shouldn’t do this with more modern LED units but old-style lamps can be replaced. Cue jokes about changing lightbulbs.

The more you tinker around with your car, the more you will be able to do, especially on older cars that were more mechanical than electrical/electronic.

What about the things that you shouldn’t touch? You should never attempt the following unless you really know what you’re doing:

  • Anything to do with the electronics or computer componentry. If it involves wires or circuit boards, leave it alone.
  • If you haven’t got the right tool for the job, don’t improvise. Borrow the tool from a mate, buy yourself one (although this could end up getting expensive) or bite the bullet and get down to the mechanics.
  • Anything you don’t have the right spare parts for. You are not MacGyver, so don’t try interesting improvisations involving bits of string, coat hangers and bits of metal

It’s a big moment in anybody’s life when the time comes for getting your first car. It’s also a big moment when your teenager needs a car of their own.

Buying a teenager’s first car is somewhat different from a car you buy for yourself. For the average family, it can be a bit of a thorny issue, with lots of questions that need to be answered before you all head down to the car yards.

Even if you are in a financial position and/or have the inclination to buy your teenager’s first car and give it to him or her as a gift, there are still issues to be worked through. The average teenager has no idea of the costs involved in running a vehicle. OK, he or she sees Mum and Dad putting in petrol and maybe doing the odd repair, but a lot of this just doesn’t get noticed. Parents have the responsibility of making sure that a teenager is prepared for this so a nasty reality slap doesn’t come once he or she leaves home and suddenly has to foot all the bills.

Because it is wisest to let your teenager pay for at least some of the running costs of the car, if not all of them, your teenager needs to have some form of income. Pocket money and grandparents don’t count; paper runs, mowing lawns and babysitting do. You may also need to give them some budgeting advice so they don’t suddenly find themselves short if the car needs new tyres.

First of all, you will need to sort out how to purchase the car. Are you going to get out a loan for the car? Who is going to make the repayments  you or your teenager? Or are you going to split the repayments? How much of the purchase price of the car are you willing to fund and how much will your son or daughter have to produce? There aren’t any right or wrong answers here. You may want to buy the car as a gift, or you may allow your teenager to get a no-interest loan from the National Bank of Mum and Dad, which they can pay off as time goes by.

If a loan is needed to purchase the car (and this can be a good idea to ensure that your teenager’s first car isn’t a cheap dunger that breaks down half the time and incurs nasty repair bills), then it can be easier for the parents (who usually have stable jobs and a better credit history) to take out the loan themselves and arrange a sort of within-family novated lease. If a loan is necessary and your teenager needs a car in order to travel to their new job (e.g. because it’s too far to walk to that workplace and/or taking public transport would involve travel at hours when it’s not prudent for a young person to be on the streets), then this sort of arrangement can be a smart option.

You also need to negotiate who’s going to pay for what. There is insurance, fuel, repairs, registration and all those other ongoing costs to be taken care of. Smart parenting sense suggests that these bills should not be automatically taken care of by the parents: teenagers need to learn some responsibility. However, there is some room for negotiation rather than just insisting that your teen take on the responsibility as well as the pleasures of car ownership. Parents may want to take care of third-party insurance, for example. Or parents may contribute towards fuel and other running costs in exchange for certain favours (e.g. if your teenager uses the car to run errands for you).

Take the time to talk it through and to educate your teenager about what it means to own a car and what it takes to run it. He or she might then decide on some other option for transport until they’re in a better financial position.

Some Car Dealer Tricks To Watch Out For

So there you are, all ready to purchase a new set of wheels. You’ve done your homework about getting finance for your vehicle and you’ve done the research for the sort of car you want, so your problems are all over and the fun part is about to begin, right?

Well, this would be the case if car dealers were all completely above board and didn’t have a set of tricks up their sleeves to persuade you out of your cash, and possibly more cash than you really intended to pay. We’ll assume that the car dealers aren’t trying to sell you an absolute dog that will blow up within a week, but they’ve still got some high-pressure tricks that you need to be aware of so you can shop smart and not fall for them.

Trick #1: Bait and switch. This is one of the oldest tricks in the book. You’ll see an ad in a magazine or in the paper or online for a car that looks like everything you need for a reasonable price. But once you get around to the car sales yard, they tell you that Too bad, mate, that one’s just been sold. But over here, we’ve got And then the pressure starts for you to buy something pricier.

Trick #2: Bamboozling number crunching. If you have found a car that you like, a dealer may try to talk you into a finance agreement that isn’t the best for you. This is usually done by taking you very quickly through a bewildering array of numbers and calculations and keeping your attention fixed on the weekly/fortnightly/monthly repayment amount. However, things like unnecessary extras (e.g. extended warranty periods, income protection insurance schemes) tend to be glossed over, as do loan terms and interest rates. The chances are that this will be presented so quickly that all you can really grasp is the repayment amount. It’s far better to come to the dealer prepared with a pre-approved personal loan that you’ve negotiated after long and careful thought in a pressure-free situation.

Trick #3: Playing mechanic. Here, the car sales rep will give your current set of wheels a glance and try to tell you that it’s really time that you bought a new one, even if you’re just casually browsing through the car yard doing your homework or window shopping. However, the average car dealer isn’t a mechanic (some are, but that’s another story) and they’re not really able to pronounce on the condition of your car just with a quick look. Even your mechanic can’t do that. Avoid this by keeping your mouth shut about your current form of transport and parking your car well away from the yard.

Trick #4: What brings you in today? This is not a casual, friendly question. They’re trying to find out if you’re desperate for a car or not. If your current car has just blown up and you tell them this, they’ll be rubbing their hands with glee  you’re already under pressure and are likely to agree to something less than stellar as a result. The correct answer to What brings you in today? or So what can we do for you today? is Just looking for now, said very casually.