Zero Percent Interest? Sounds Too Good To Be True.
There are some great interest rates around for new car buyers right now- even as low as zero percent. Are they the real deal or is there a catch?
Too often you hear the consumer watchdogs say ‘If it sounds too good to be true, then it probably is”
So does that apply to these fabulous interest rate offers?
Well, yes and no.
When a manufacturer offers a great rate it will be honoured (unlike some sharks), but it will be on their terms-not yours. Often that means the deal isn’t so good for you after all.
Let’s explain.
Suppose you see a great 2.9 percent interest rate on the car of your dreams.
Should you rush in and buy?
Mmm, maybe, but there are a few questions to ask first before you sign up
Q1- Is the offer on the exact car I want?
You may find the dealer has a special offer only on a special spec car that they want to move quickly. Maybe the manual (but you want the auto- or vice versa), maybe it’s a run out model that could cost you thousands in depreciation when the new model is announced a few weeks later.
If it is the right car, right colour and right spec go on to Q2.
Q2- Do I get a discount?
Almost certainly the answer is ‘NO’.
The interest rate is usually only available if you pay the full manufacturer’s recommended price.
So you have to weigh the interest rate saving against the discount you don’t get- we’ll show you how later.
Q3- Can I delay delivery?
You may want your car right now, and that will be fine. But what if you aren’t quite ready and want to wait a few weeks before taking delivery? That could be a problem, the salesman wants his commission now and will almost certainly insist you sign up today- tomorrow may be too late and next month is a definite no-no.
Q4- Can I change the interest terms?
These ‘specials’ usually have restrictive and narrow terms. For example, they may be for a no deposit, no residual fixed term of three years. If you want a four year term with a residual payment, then – no deal. Similarly the deal may be for a high residual, but you want to pay the lot off with no residual. So-again, no deal.
Q5- Can I do a trade in?
Yes, they will usually accept trade ins, but you may not get the best trade in price.
Q6- I was going to pay cash but I can’t resist such a good interest rate.
Many feel like you- but think again. This ain’t a free lunch, so if you have cash, then use it to negotiate a discount that you otherwise wouldn’t get.
The Golden Rule is to check ALL the figures first!
Be careful, do the figures then check again to see if it’s still worthwhile.
Here’s what we mean.
You want to buy a new car that is $40,000. You have no trade in and you are happy with the 2.9 per cent interest over five years that’s on offer, and you’re ready to sign up.
Hold on! Wait! Check it out first!
Let’s suppose Private Fleet can negotiate a discount on the car of $3000, and you can get an interest rate from your own sources of 5.6 percent.
Now let’s look at the actual cost to you.
Example 1. Pay $40,000 and get 2.9% interest over 5 years. Your total cost will be $43,018.20.
Example 2. Private Fleet has negotiated a buy price of $37,000 and you are paying 5.6%. Now your total cost is $42,507.12. That, then, is a saving of a cool $501.08-straight into your pocket.
Not such a good deal after all, is it?
So to conclude, what really matters is your total cost not the enticement special.
Sometimes it can work for you, but so often you can do better-with our help of course!
Level 2, 9 Help Street
John Lewis says:
Not ready yet, but would like a GXL Prado auto,Diesel, or a Volkswagon Tiguan, and probably a demo, rather than new, because I believe it would be better buying, and if new I would have to pay luxury tax, cannot yet decide the better buying but Prado has an extremely strong retaining resale value
September 14th, 2012 at 11:02 am
david milton says:
I have worked retail/wholesale/advertising and the tricks some Companies work on the public , is unreal , always check a deal , against the regular market, and you will find what looks good up front, turns out to be a con job. That’s why I brought my car from Private Fleet, to me the best deal in town.
David Milton. Mt Annan.
September 14th, 2012 at 11:37 am
Graham Chapman says:
I am intrigued by “comparison rate”. What does it maen?
September 14th, 2012 at 12:00 pm
Lisa Stewart says:
I would love a 4×4 auto with sunroof for 0.0% interst rate
September 14th, 2012 at 12:21 pm
James Layton says:
Comparison rate is a handy tool used to compare the actual costs of finance.
Here’s a simple example to give you an idea how comparison rate works using basic simple interest:
Say you take out a loan for $1,000 with a 10% simple interest rate. That means you’re going to pay $1,100 over the course of the loan.
Now imagine you take a loan out with a different provider for the same $1,000 at 1% simple interest rate, but with a $90 loan establishment fee. You’ve still paid $1,100 over the course of the loan, even though only $10 is “interest”.
Comparison rate is an interest rate equivalent to the full costs of the loan including actual interest, fees, residuals etc. It’s designed so that you can compare apples with apples.
Any finance provider should, by law, tell you the comparison rate for their finance offering if asked.
September 14th, 2012 at 1:30 pm