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.

Tips For Managing Your Car Loan

A car is probably the second-biggest purchase made by the average person these days, second to that mortgage on a home (although, these days, a university education could probably be considered a purchase that would put the car into third place). Some people are lucky enough to be given a salary package that includes a novated lease on a vehicle. Others, however, need to find some alternative form of finance when they need to get a new set of wheels.

Because car repayments can be such a big commitment, it pays to think carefully before you head out into the car yards. It can be hard to keep your head and make wise decisions about repayments, loans and financing when you’re confronted by an amazing shiny new car and a very persuasive salesperson. The really important thing is to stop yourself from getting in over your head.

Some simple tips will help you manage your car loan by making wise decisions before you begin the process of shopping around for a new set of wheels:

  1. Set a budget. Work out how much you can afford per week or per fortnight and stick to it. Don’t commit yourself down to the last dollar of your paycheck  there is always some unexpected expense that crops up somewhere.
  2. Remember to include things like car maintenance, insurance, registration and fuel in your budget. If your previous car was a frugal little vehicle but the new car that you’re buying to fit in your growing family is larger and has a bigger engine, then you may well face paying more for fuel as well as the repayment amount. If you haven’t bargained on this, you may find yourself in financial trouble.
  3. Shop around. Don’t just settle for the first deal or finance package offered to you by the car salesperson. Take the time to find the best deal that works for you and your situation  or get us to do the hard yards for you. Things to take into consideration include repayment amounts, interest rates, loan terms and whether or not you can make extra lump-sum repayments. If you already have a good credit history with a particular lender (e.g. a bank or credit union) then you may be able to get a better deal with these people, as they already know what you’re like. (Don’t forget to let us know about this sort of thing when you contact us about finding the best car loan provider for you.)
  4. Use debt calculator tools to find out how much interest you will end up paying. You may be surprised at how much more you will end up paying in the long run.
  5. The bigger the deposit you can scrape together on the car, the less you will have to borrow, which means that you’ll pay less interest in the long run. Don’t forget to ask a car dealer (preferably over the phone or via email to avoid being pressured by a face-to-face situation) about the possibility of trading in your old vehicle to cover part of the payment.

A New Car For Christmas?

Christmas seems to be absolute bonanza time for advertisers of all sorts, including car advertisers. They’re out there trying to tell you that a new car would make a great Christmas present for yourself or your family. Some of you might be considering it, which is why you’re out looking for a personal loan or a car loan to finance it.

If this is you, it might be time to stop and think before signing anything. Christmas is a bit of a high-pressure time when the advertisers are out to get you to spend, spend, spend. More than one person has committed to something over the Christmas present and then ended up regretting it in January when the pressure of regular repayments starts to bite.

You should never buy a car under pressure when there’s a deadline  and Christmas day is a deadline of a sort. It’s bad enough if you have to find a new vehicle in a hurry at any time, but in other situations, there’s always the option of using public transport or catching a lift with a mate (with the promise of returning the favour later) while you take the time to find the best deal for a car loan. But with a deadline  that’s when you can end up committing yourself to a finance package that might not be the best for your income and existing commitments.

Before you sign up for a car loan, you should always ask the questions and do the research, not only into the car you would like to buy but also into the financial package in question. Ask about interest rates, the term of the loan, repayment frequency and whether or not you can make extra repayments. Feel free to ask us any questions  even if you think they’re silly questions. It’s what we’re here for.

Unless you are loaded (in which case, you wouldn’t be visiting a financing website), a new car makes a bad Christmas present, even for an enthusiast. New cars depreciate shockingly quickly and second-hand ones can provides some surprises that you don’t really want. It’s better to pick out your own car that suits your own needs (and budget) than to try to choose something that suits someone else.

If you do have a car enthusiast in the family and want to buy him/her a car-related Christmas present, look for something smaller than a car that doesn’t require the same level of financial commitment  and which probably won’t require a loan. Here’s a handful of suggestions:

  • A years subscription to an automotive magazine (do some sneaky asking around to get the right title).
  • Any car care accessories: chamois leathers, car wax  or some home-made I will wash your car vouchers. Or make your own car care products.
  • Driving gloves. Old fashioned but due for a comeback.
  • Other car accessories: seat covers, sunshades for windscreens, fluffy dice for the windscreen.
  • Model toy cars of the type that you know the car enthusiast in your life dreams of having.
  • Items decorated with the logo of their favourite marque: key rings, drinking glasses, T-shirts, etc.

And for a light-hearted look at those Christmas-themed car ads plus a few parodies, have a look at this link from Jalopnik: http://jalopnik.com/5970105/great-six-years-of-car-payments–your-lexus-christmas-ad-parody-roundup-is-here/.

Why You Might Need A Bike Loan

Hands up all those who think that this article is going to be about motorbikes and being approved for a loan so you can buy yourself a new motorcycle  or so you can get the school leaver in your family a form of transport that’s relatively cheap to run so he or she can get to that first job next year. Well, we can certainly help you with this process and some of our posts earlier this year have covered issued to do with motorbikes and how to choose them.

But that’s not the only sort of bike you might need a loan for. These days, if you want a really good one, you might even need to take out a loan to buy a pushbike. Yes, a pushbike. While you can still find bikes of the sort that most readers knew when they were kids (and at the same sort of prices that won’t break the bank or require a loan), a really good bike can cost more than a second-hand car.

Bikes have come a long, long way in the last twenty-odd years, and they’ve been developing much faster than cars have. Twenty years ago, a really good bike had 12 gears and a car had five. Now, a really good new car has eight gears but a top-range bike can have 24 or more. Bikes have got lighter, too, with the best ones being made of pure carbon fibre. Add in suspension and you have something lighter, faster and capable of tackling rougher terrain than the old BMXes we used to muck about with. No wonder these bikes cost well into the thousands  and why you may need to take out a loan to buy one for yourself this Christmas.

Why are bikes getting so good? These top-notch bikes aren’t just the domain of professional mountain bikers, stunt cyclists and Olympic racers. These bikes are being used for commuting; hence the demand for better, more efficient machines. There’s also a bit of a prestige thing going on  if you do decide to ditch the car and cycle to work for whatever reason, and you’re the manager, it looks a bit better if you have a very, very good bike parked in the workplace parking space rather than the rusty old clunker you’ve had since high school. Lighter bikes are also more compatible with other forms of public transport, as it’s easier to get a carbon fibre bike onto a bus or train than a big steel or even aluminium one.

The one big advantage that a bike has over a car is that it will eventually pay itself off in savings  you don’t need petrol to fuel a bike (and you’ll probably save on gym memberships). This means that if you do take out a loan to buy a good bike, you will be able to put the money you would have spent on petrol into the weekly repayments. This brings out another advantage of taking out a loan to buy a good bike rather than saving up and getting one in six months time: having to make those weekly or fortnightly repayments helps you stay motivated to keep using the bike for your commute so you don’t have to pay for petrol as well as the weekly repayments.

When you buy your bike, don’t forget the other bits you’re going to need. You will need a good helmet and possibly some high-viz gear for daytime.You’ll definitely need lights for night-time and you will also need a very heavy-duty security lock. There are tons of other accessories to consider to make your bike commute better, from gloves to rainshield for backpacks, so you might like to allow for purchasing these if you are considering a loan for a bike.

OK, we probably aren’t going to see people doing a salary package involving a top-of-the-line pushbike in the near future. But if you’re considering your transport options for the year ahead and a cycle commute (with or without public transport for part of it) is feasible for you, then why not think about getting one of the great new bikes that are out there these days and taking out a loan for one of these instead of buying a second-hand car? But car, bike or motorbike (or boat, or ride-on lawn mower, etc.), remember to talk to us about the sort of loan you need so you can find the best deal possible.

The Fine Print

Everywhere you turn, you get offers either for cars or for loans or for both. They’re in the newspaper, in magazines, on the radio, on TV and on billboards and even on the community noticeboards at the local supermarket. If you’re on the hunt for a new car and need a bit of finance, then it can all be a bit overwhelming. Every single ad sounds like such a good deal. However, every single ad has fine print hiding underneath the large banner that sounds so attractive. What do you choose?

Let’s have a little look at random at some of these car loan deals and unpack them a bit, both the big hits-your-eye bit and the small print underneath.These have been taken more or less at random from an old newspaper but with the names of the dealers and companies removed to protect the innocent and the guilty!

1 0% 50 50. The no interest bit looks great to many people, but the fine print explains what the 50 50 bit means. It means you have to pay half of the new car price (and the ad featured brand new prestige European models) straight away and the other half 12 months later.Great if you have been good about saving up for that first 50% and if you are in a position to scrape the other half together in just 365 days.

2 Just $XXX per week. Looks manageable but when you look down the bottom of the page, you see that you need a 20% deposit and the term of the loan is for 48 months. And the amount includes loan protection insurance/cover. If you can get that 20% deposit, well and good. At least the ad is up-front about what you’re going to be forking over each week.This is a very common type of ad for car finance and the actual details in the small print vary from company to company, so read it carefully.

3 Purchase today with 3% interest rate. A lovely low interest rate, sure, but the fine print says that you need a 30% deposit and the longest you can have the loan for is 36 months. You’ve also got a loan establishment fee.And you don’t know what your monthly repayment amount will be.

4  8.9% finance on any new or used XXXXX.This ad didn’t have any small print apart from the usual XXXX lending criteria apply. There’s no mention of deposit amounts or loan terms, so it would pay to ask a few questions here.

5  Free insurance for 12 months with finance. The small print didn’t say much apart from the fact that the offer was only for private buyers and small business operators and you couldn’t get this if you were buying a company fleet. And you had to be over 21. However, this was just a small part of the full-page ad, and individual vehicles in the ad had the just $XXX a week banner (see above).

And if you find it all too confusing, just ask us to do the hard work for you sorting through all the myriads of loan companies!