The HIGH cost….. of low interest rate dealer finance for your next car or tractor!!22.01.2019
According to the Deloitte Motor Industry Report; Australians as a nation buy over 1,000,000 new vehicles each year. Their research revealed:
- 80% of us had already narrowed our vehicle search online, before setting foot into a dealership.
- 80% of these new vehicles have been financed in some way; and some car dealers are reporting 90% of their profits now come from finance and insurance. Car dealers also made 40% more income as a group on their finance and insurance.
So if car dealers are predominantly making more money with finance than ever before and the Reserve Bank of Australia (RBA) interest rates are currently at around 3%, how are they making money offering finance at 1%, 2% and 2.9%?
The short answer is, that they are not!
These low rates simply mask the fact that some car dealers are now actually losing money selling cars.
Your Business Angels experience is that the above phenomenon is actually amplified for second-hand dealer-sponsored vehicle sales and outrageous for tractors and farm machinery.
Brands such as Holden, Nissan and CaseNewHolland are offering low comparison rates, some even as low as 0%, 0.5% or 0.9%; but the key is that they are then paying a lump sum to the financier to subsidise the finance. BMW and CaseNewHolland have their own finance subsidiaries in Australia, but it’s not about accessing cheap European money from their parent companies.
What that means for you as a buyer is that if you obtain finance at a special “subsidised “ offer, you are probably paying far too much for the vehicle or tractor.
No one enjoys feeling cheated. Here are some easy ways to help make sure you get the best deal:
1. Get the best price for the vehicle or tractor BEFORE you mention finance. In fact ask for the best cash price first, insisting you are a “Cash buyer”. If you want to ensure that you don’t pay too much simply because of where you live, or if you don’t feel comfortable negotiating, take advantage of our Procurement service, which sees dealers across the country compete for your business and you can be confident that you will get a competitive price before organising finance. The service is free for you to use.
Remember, those car dealers are great at closing a deal! But they aren’t all smart….not as smart as you if you can obtain the “real invoice price” AND take their cheap subsidised interest!
2. Ignore the advertised finance rates and compare payment instalments. Every comparison rate advertised on a vehicle will mention that the rate may not include all fees and charges – which means the rate isn’t genuine to begin with.
3. As a rule of thumb, the lower the interest rate, the more restrictive the terms. If the timeframe for the special is short, it may well be that the dealer is under pressure to move stock to make way for new models. If this is the case, you should see significant differences between the standing recommended retail price and the price that could be achieved for genuine surplus or soon-to –be superseded stock; often up to 20%! So depending on the situation, paying 20% more for the vehicle isn’t always going to be made up easily by obtaining a cheap finance rate.
4. Seek assistance from Your Business Angels to gain confidence and run comparative numbers on the real rates offered. Your Business Angels can be your advocate in pushing back on pressure salesmen, but we can also facilitate access to the best “unsubsidised” rates from a panel of over 50 lenders. Whilst it can be great fun choosing your new car, comparing the payments and the real cost of some of these deals generally isn’t as straightforward as it should be.
5. Be sure to alert you’re your Business Angels CSM of your plans to invest in new or replacement vehicles or machinery. Give us the opportunity to ensure the invoice issued, whether financed or not, in the right entity. Let us help you ensure, from the outset that:
- GST treatment on any traded goods is correctly accounted for;
- A copy of the invoice, plus trade and finance docs, are ready for our next BAS preparation;
- FBT is (legally) avoided;
- Primary producer registration concessions eligible are claimed for dealer-arranged new registrations
- New plant items are suitably insured (condition of all finance contracts)
- There is a Your Business Angels work paper to track all monthly instalment payments for you
6. Your Business Angels and TDS Finance together will help steer you in the right direction to get the best deal for your new vehicle or farm machinery and its finance.
The Royal Commission hasn’t finished with the banks, financial planners and insurers yet. Don’t expect too much structural change in the vehicle industry for some time yet!