16 June 2017,

If you are keen on a new car, the EOFY (End of Financial Year) Sales are very enticing as you can bag yourself a good deal on the car, the advertisements say you can, so it must be true….

But a word of advice…. Don’t trust the car dealer to get you an equally good deal on the new car finance.

Maybe they can, maybe they can’t or maybe they don’t want to. The so called ‘finance expert’ is working for the car dealer not for you they are not in it to find you the best deal rather to maximise their commission.

Please always make sure you get a second opinion on any new car finance – and I do not mean talking to your bank. You need to talk to a Finance Broker that has access to multiple lenders, is Licensed, qualified and experience and will look after you.

Both car dealer finance and banks only have one finance option. In the case of the dealer finance it may be a really good deal, but how do you know without first investigating your options?

When people buy a fridge or washing machine they shop around for the best deal, but not with finance. Why is that?

Did you know, Car dealers can make more money through the finance than selling the actual car – especially when you do get a second opinion – always get a 2nd opinion.

The other big earner for Car Dealers is bonuses, if they sell a set number of cars in the month, this is were the real profit is in selling cars, not from each transaction they may actually lose money on the sale of one car because that last car in the month gets them over the bonus threshold (there fo buy your new car at the end of the month).

The main car brands will normally have their own finance arm (think Toyota Finance, Ford Credit, BMW finance etc) and if the car dealer doesn’t, you can be assured they will only be aligned with one finance company.

The benefit of using Broker with multiple options is that one of the Lenders will be better than the rest or it may be possible for the broker to negotiate on your behalf and get you a better deal. When the car dealer only has one option it may just be lucky if the sale coincides with the cheap rates on the car finance.

How to compare new car finance?

The big tip here is to not just compare interest rates as it is only part the story. As an example think about the 0% Comparison Rate Finance that car dealers promote. The interest rate is not actually zero PLUS there are a lot of extra fees involved that they don’t tell you about unless you ask – please read this article I wrote on Zero percent finance

Too truly compare there are 4 things you need to know. Ask the dealer the following

  1. Loan amount
  2. Loan term
  3. Is there a balloon or residual payment?
  4. Monthly repayment

And then talk to a Finance broker.

Dealers like to just quote you the weekly repayment or just the interest rate because this makes it sound wonderful.

“Look you can afford the shiny new car it is only $100 per week….”

But by doing this they are focusing on the affordability and not on the reality. They don’t want you to think about the fees, interest rate or commissions they are collecting – get a 2nd opinion so you can see if you are getting a good deal.

There are some seriously dodgy activities that some car dealers get up to, just to sell you a car and to make commission from the new car finance, you would seriously be amazed. Not all car dealers but you must remember they are lot

In mid-2016, there was a review requested by ASIC into the lending practices BMW Australia Finance. They uncovered a number of things but in particular and you can read the article here, but how’s this…

“BMW…boosted the bonuses paid to sales staff who maximised the interest rates they charged on loans.

Under the incentive scheme, a dealer would receive a $375 commission if they charged a customer the base interest rate of 5.49 per cent, but if they ramped it up to the maximum, 12.29 per cent, the sales commission would be $8,163.”

Now I am not saying this activity is normal, but there is a lot of it and the nature of their industry is they it can happen. It is exactly why you need to look out for yourself. Don’t take the easy or simple option – get a second opinion on your new car finance it could save you a lot of money.

I hope you find this helpful. Please contact me if you do want that 2nd opinion on your new car finance or some independent advice.


David ‘Johno’ Johnson the Home Loan Guy

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