Guest Blogger: Kylie Ofiu
Sometimes you need a personal loan. I needed one last year when my car broke down. Even with the cost of interest and fees, getting a car loan was thousands of dollars cheaper than fixing up my old bomb and driving that.
We went looking at new cars. There were some great deals on which on the surface, looked fantastic such as low interest, but once I looked deeper into the contracts, the fine print would have cost us a lot.
There are two types of finance at car yards, the car dealer finance and factory finance and it’s important to understand there are differences between this type of finance and a regular car loan or personal loan from a bank or credit union.
Most car dealers will give you on the spot finance. Car dealers bet on the fact that you will see something and want it instantly. Whilst some car yards have their finance backed by major banks such as St.George, others do not. When looking into dealer finance, there are a few things to watch for:
- Interest rates were often higher than if you went to the bank directly.
- You could not pay the loan out early. If you did, the interest for the full term of the loan would be charged anyway.
- Add-ons such as insurance are usually built in and more expensive than elsewhere.
You can negotiate and request those clauses to be removed or amended to reduce the cost. Also go in to the dealer at the end of the month. Dealers get commission on loans as well as the cars and at the end of the month, they will be keen to secure a bonus and be more likely to negotiate.
When we were looking, we were offered extras worth thousands in an effort to secure the loan and sale because it was the end of the month. We spoke to a few different dealers, all with offers and one even said, “Look, it’s the end of the month and I haven’t made my bonus. If you buy this, I get a bonus”.
Car companies sometimes offer factory finance. Instead of the finance through the car yard, the company (e.g. Toyota) offers the finance. The interest rates are often low, with insurance included. The payments are also lower and at the end of the loan, you need to make a lump sum payment or hand the car back.
These cheap deals are often only on certain models, not the entire range of cars and the interest saved is usually less than if you negotiated a lower price with finance from elsewhere, so they are not always a great deal.
By knowing what to look out for, what to negotiate on and the differences in loans, you are much better prepared to secure a good deal and save yourself thousands.