Car finance tricks and traps

About this post

After several tough months on the car yard, a renewed demand for new vehicles has seen sales rise 7.6 percent in April, compared to the previous year.

Latest figures from the Federal Chamber of Automotive Industries show small cars are driving the demand, with a 20 percent increase in sales for the month compared to last year, unlike larger vehicle sales which fell 24 percent in the same period.

It seems that a bombardment of new-car marketing deals – that appear to be the lowest ever seen, with offers available from 0 percent interest financed through car dealerships – have helped to kick start a slow market.

The deals on offer look pretty attractive. But reports suggest not all deals are what they seem with some motorists allegedly paying more in interest than the cost of their new cars.

One motorist who fell into a car finance trap was rugby league star Sam Kasiano, who signed on for finance to purchase a $39,000 vehicle. Repayments on the car will amount to $77,000 by the time he has paid it off, he told Today Tonight.

“I got ripped off,” he said.

While some of these deals might seem too good to be true, Canstar’s head of research Chris Groth, said they are real. He urges consumers to do their homework and understand the conditions of the offer.

“The cons are that you’re generally limited to a three- or four-year term so you must make larger repayments in order to pay the vehicle off completely in that term,” he told Today Tonight.

It’s wise, he says, to look at all options available before signing on to any one offer.

“You’ve got traditional banks, building societies and credit unions competing quite hard in this space. You’ve also got the dealer finance as well – there are many options for the consumer to get a great deal.”

If you prefer a car loan to dealer finance, a simple way to compare car loans is by using a free comparison site, such as RateCity which allows you to compare not only by rate, fees and repayments, but also by star ratings. At the time of writing, RateCity shows car loan interest rates advertised from 7.94 percent.

Groth says that with cars, particularly new cars, it’s important to think about the total deal and not just interest rates and repayment terms but depreciation as well.

“Don’t only think about the interest that you might pay on the personal loan, but on the other side of the coin think about how much the vehicle might be worth at the end of the term and how much you pay in total repayments,” he said.

And, as with any financial product, always do your homework and read the fine print before signing up.

This is an information service. By browsing on the website and/or using our search tools, you are asking RateCity to provide you with information about products from multiple financial institutions. We will try to show you a range of products in response to your request for information. The search results do not include all providers and may not compare all features relevant to you, for further details refer to our FSCG. The rating shown is only one factor to take into account when considering these products. We are not a credit provider, and in giving you product information we are not making any suggestion or recommendation to you about a particular credit product. If you decide to apply for a product, you will deal directly with a financial institution, and not with RateCity. Rates and product information should be confirmed with the relevant financial institution, and you should review the PDS before you decide to purchase. See our terms of use for further details. This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.