Taking out a car loan is about to get a whole lot fairer, thanks to ASIC’s latest ban
From today onward, prospective Aussie car owners will receive a fairer deal when it comes to taking out a car loan, thanks to ASIC’s new ban on flex commissions.
Flex commissions refer to arrangements made between lenders and car dealers, in which the lender sets the base interest rate, but the car dealer can decide to charge more.
This means an unsuspecting customer could be charged a sky high interest rate on a car loan, earning the broker or dealer a larger commission.
But under ASIC’s new ban on this style of lending, the car dealer cannot suggest a different interest rate that would earn them a higher commission.
“We found that flex commissions resulted in consumers paying very high interest rates on their car loans. We were particularly concerned about the impact on vulnerable consumers less able to protect their interests,” said ASIC Commissioner, Danielle Press.
“The ban on flex commissions will deliver better outcomes for consumers across the entire car finance industry.”
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What this means for drivers
According to ASIC, the ban on flex commissions should see Aussie car shoppers:
- Offered an interest rate based on their financial circumstances and credit score
- More likely to receive competitive interest rates from car dealers
- No longer be tricked into paying high interest rates when they are vulnerable
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How much Aussies could save
ASIC believes that the system is likely to deliver massive savings for Aussies. For instance, say a consumer looking to borrow $25,000 over 5 years was charged an uncompetitive rate of 16%, they would have had to fork out $11,477 in interest.
If that same borrower took out the same loan after November 1 on a rate of 10%, they’d pay $5,415 - a saving of $6,062 and $101 less in monthly repayments.
Toyota gets ahead
Although the ban is set to cap profitable commissions earned by dealers and brokers, some of those in the industry have agreed to welcome the move with open arms.
According to research by Toyota Financial Services (TFS), only 26% of Aussies know their credit score, prompting many car industries to develop their own systems.
“We have spent three years developing and refining the Toyota Personalised Rate methodology. Consumers will get a rate that reflect their individual circumstances and they will also have more transparency of their car within the car buying process,” said President and CEO of TFS, John Chander.
“The introduction of this new ASIC legislation is very welcomed and helps the entire industry.”
But while the new legislation is set to help Aussies get the best deal on their car loan, it doesn’t mean you still can’t shop around on some of the latest offers. Our car loan comparison tool compares a range of car loan, helping you find the right loan for you.
* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
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