1. Special Deals From The Dealer?
You may have noticed that dealerships sometimes advertise ridiculously low interest rates. At first glance, you may assume that these low rates are the best value. A margin must be made somewhere! If it’s not from the finance, the dealership could be making substantial profit from the sale of the vehicle. This is profit which you may be better off negotiating!
Let’s consider the following:
John visits XYZ dealership to look at a new Volkswagen Touareg for $90,000 drive away. John has $20,000.00 as a deposit but will need to borrow the remaining $70,000. The XYZ dealership has offered finance at 1.5% per annum over 5 years with a $1,500 origination and monthly repayment of $1,272.42. They are not willing to negotiate on purchase price as they are giving John an ‘incredibly good deal’ on the finance…
For a second reference, John speaks to James his finance broker. James informs John that he works with a panel of 30 + lenders and he will filter through them all to see where he can get him the best deal. James comes back with an offer for John. He offers John an interest of 3% per annum over 5 years with an establishment fee of $600 and monthly repayment of $1,236.11. John tells James that the dealership has offered a much better deal saving him $36.30 per month and $2,178.024 over 5 years compared to his offer.
James informs John that they can offer such a low interest rate because of the large margins incorporated into the price of the car. James organises an approval and advises John to negotiate on the price. The dealership can no longer use the ‘incredibly low interest rate’ as reasoning behind their inability to negotiate price as John has arranged finance with James, his finance broker. After going back and forth, they agree on a price of $87,000 drive away saving John $3,000 ($821.98 better off than proceeding with initial offer from XYZ dealership).
Dealerships may also combine free servicing with finance. You may be under the impression that this is saving you money! You may be able to arrange finance cheaper elsewhere and organise servicing through an independent mechanic saving you more money overall.
Stay level-headed when buying a vehicle from a dealership. Take into consideration all variables to determine how you can get the best deal. We would advise speaking to a finance broker, so you have buyers’ confidence and negotiation power when entering a dealership to buy your desired vehicle.
2. Fixating On The Interest Rate
It is easy to fall into the trap of thinking interest rate is the most important component of your loan. Do not become fixated on just the interest rate. Ask about the fee’s charged (e.g., establishment fee, monthly account keeping fee) and any other penalties that can be incurred (e.g., early termination fees). A comprehensive analysis is required to determine what finance arrangement is the most financially sound!
3. Not Using A Finance Broker
Using a finance broker that deals with a panel of lenders gives you options rather than just dealing with your local bank or lender that only advertises their own products! If you want the power of options, it is important to choose an experienced and knowledgeable finance broker who works with a panel of lenders. They can assess your details and filter through all options to determine which lender can offer the best deal saving your countless time and dollars. Lastly, working with a finance broker comes at no extra cost to you as they are paid directly by the lender!
4. Not Organising An Approval Before Purchasing
Organising an approval before purchasing your desired asset can benefit you in more ways than you think. Time restrictions, pressure from vendors, and un-expected barriers amongst a whole slew of things can lead to un-necessary costs and hassle. Organising an approval before the purchase phase is highly recommended! You may be thinking ‘I do not know exactly what vehicle/equipment I want to purchase’ or ‘The borrowing amount will change depending on the exact vehicle/equipment I decide to purchase’ – these are common questions which prevent applicants from applying for approvals early on! Approvals can be altered if the purchase price / type of asset are similar, and the applicant can still service the proposed loan.
5. Buying An Older Vehicle
You may be tempted to buy an older vehicle to save money. Yes, you may save money on the vehicle itself. However, the overall cost of this decision will typically outweigh its benefits. Depending on the year (usually 5 + years) you may be charged additional interest. Also, the vehicle will become less desirable as it becomes older which will negatively affect re-sale value. Lastly, buying an older vehicle increases the chances of mechanical problems that will cost you time and money going forward. You should carefully consider the age of the vehicle you are buying as what may appear as a saving now, might not be the reality in the future!
These are just a few finance pitfalls that you should be aware of before applying for a loan. A knowledgeable and experienced Finance Broker can guide you through the finance process, so you bypass these problems! At Regent Finance, we have dealt with over 10,000 applications over 30+ years which makes us one of the most trusted and experienced brokerage firms in the industry. If you have any enquiries or just want to have a chat, our contact number is (03) 9480 2000 or info@regentfinance.com.au