All new cars get the same rate, I’ll get my Finance from the car yard, I will go car shopping first then arrange finance, I have seen a 1% offer on car finance that will save me money – No, No No!
Keep reading as we explode the top 10 mistakes people make when buying a car……….
1. All new cars get the same rate…. No! A great example of this at present is “energy efficient vehicles” which may be eligible for a 0.7% discount on standard rates. Readers would be mistaken if they think the list of vehicles are only electric, they just have to have lower emissions. For example there are 50 Audi models on the list. Want a new Hilux? Contact us for a list of eligible vehicles.
2. I’ll get my Finance from the car yard…. Be careful! You can get a great deal from the dealer however many dealerships rely on their finance area for profitability. We recommend always checking with an independent party (like RFS) to ensure you not only have the right type of loan but the rates & terms are competitive
3. I will go car shopping first then arrange finance…. Like any other asset purchase a car needs to be budgeted & financed in the right way. This includes term of loan, balloon, interest rate & most importantly repayments are affordable. We recommend seeing us first.
4. I have seen a 1% offer on car finance. That will save me money…. Again be careful. These offers can be accompanied with requirements to pay full recommended retail price. Like comments above make sure you are comparing any finance offers with independent professionals.
5. I will use the equity in my house for a car loan and add the loan to my home loan…. In some cases this may be your only option. If we look at a quick example we can see how this strategy can negatively impact –
Clients have a $300,000 home loan @ 4% over 20 years with repayments of $1817 pm. If they add a $40,000 car loan to the home loan the new repayments only increase to $2,060 pm. On the surface this is attractive as the increased repayments are only $243 pm. However, this masks the fact that the repayments are now over a 20 year period meaning clients end up paying over $58,000 in repayments. There are other dangers with this – using equity in house, repayments over 20 years long exceeds the life of the new car etc.
6. I have to save up a deposit to get a vehicle…. Maybe. But – Car finance is not what it was in years past. There are both specialist lenders as well as traditional & every applicant is assessed on their merits. No & low deposit finance may be available. Talk to us to find out.
7. I have negative equity (I owe more than it’s worth) in my current car so I’m stuck with it…. Unfortunately this happens a lot. It’s a result of taking the incorrect loan product with too large a balloon (or circumstances with usage change like larger kms driven). To explain – A balloon or residual is an amount that is still owed to the financier at the end of the loan term. The primary reason people take a balloon is to reduce monthly repayments. i.e. the higher the balloon the lower the monthly repayments. This is an easy trap to get into. The buyer may be presented with a better model (more expensive) car that is really beyond their preferred price range. At end of the term negative equity may be able to be financed in a new car (up to 10% of a new vehicle). We stress this requires specialist assessment to ensure loan clearance & car values align. Again talk to us.
8. My Broker/ Banker/ Car Yard gave a rate of 4.0% so the repayments must be cheap…. You would think so wouldn’t you! Unfortunately with items such as “brokerage” (an amount earned by the financier), loan terms, balloon percentages & varying disclosure requirements what is really important is to compare the proposed repayments & actual balloon amounts.
9. I’ll shop around for Finance…. You can do this. We don’t recommend it though. This is because most finance applications require a VEDA credit check. Veda now scores everyone on its data base with scores between Zero & 1,200 with a national average of approx 750. If you apply for credit a number of times over a short period this will adversely impact your score & can result in loan refusal in future. It’s very important that clients select final option for financing of their car without allowing credit checks to be made with comparisons.
10. My friend, boss, colleague financed their car one way so that’s what I will do…. No No No. Everyone’s circumstances are different. Your suitability for a personal loan, chattel mortgage, novated lease or any other option is very much dependent on your own finance position & your short & longer term goals.
Bottom line – talk to us before you make the move to buy that next car.