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Car sales tumble as select banks cut car loan rates

Car sales tumble as select banks cut car loan rates

Australia’s love for the 4WD could not slow down the car industry’s two year sales slump, new data reveals, but more than a dozen banks have made buying a car a little easier by cutting interest rates.

The car industry has been struggling with sales for more than two years, but the compounding effect of restrictions brought about by the coronavirus may have exacerbated sales further, according to the industry’s association.

“We’ve seen 29 consecutive months of diminishing sales in this industry, and there’s no doubt our members are feeling the pinch,” Tony Webber said, chief executive of the Federal Chamber of Automotive Industries.

“... It is particularly difficult for our members and their Victorian dealer networks under the current Stage 4 Restrictions, and this is reflected in the reduced sales figures.”

August’s sales fell 28.8 per cent to 60,986 vehicles, when compared to the same period a year earlier, and it contributed to a decline of 20.4 per cent in sales since the beginning of this year.

The results were released a day after the Australian Bureau of Statistics confirmed Australia is in the midst of a stinging recession, where the national economy contracted by 7 per cent -- the largest contraction since the 1930s

Toyota topped the sales list, but 4WDs were the big winners

Toyota was the top selling brand for the month with 12,449 sales, according to FCAI. Mazda followed with 6,921 sales, Hyundai with 4,525 sales, Kia with 4,521 sales, and Mitsubishi with 4,308 sales.

Whereas sales of passenger cars fluctuated, appetite for 4WD vehicles proved to be more resilient. More than half of all cars sold were 4WDs for the second month in a row, the FCAI data revealed.

Out of about 61,000 vehicles sold in the month of August, including light and heavy commercial vehicles, more than 32,000 of them were 4WDs, according to the Federal Chamber of Automotive Insurance (FCAI).

FCAI new car sales 2020

Source: FCAI

July new car sales tell a similar story. Out of the 72,500 vehicles sold, 4WDs accounted for fractionally more than half selling more than 36,500. Toyota’s recently released RAV4 proved to be the top selling car in July, according to data from the analysts at IBISWorld.

4WDs are not the only car category growing in popularity. Electric vehicle sales trebled in 2019 -- although from modest numbers -- and are on track to equal the sale performance this year despite the COVID-19 pandemic, the Electric Vehicle Council said.

COVID-19 health restrictions take a toll

Health restrictions instituted due to the COVID-19 pandemic resulted in the industry selling less cars generally across the country, FCAI said.

Car makers and dealers sold 8347 cars in Victoria during the month of August, FCAI said -- a drop of 65.9 per cent compared to the same period a year earlier. 

New South Wales, the largest car market in the country, sold 23,431 cars, representing a drop of 16.3 per cent compared to the same period a year earlier.

The Australian Capital Territory performed strongest. About 1312 cars were sold in the month of August, representing a rise of 0.4 per cent compared to the previous year.

The industry should reopen as soon as practicable, Mr Webber said.

“While we have the utmost respect for essential health priorities, the automotive industry supports the re-opening of our economy under appropriate COVIDSafe protocols,” he said.

Select banks cut car loan interest rates as industry sales tumble

The tumble in sales coincides with more than a dozen banks slashing interest rates on car loans, according to an analysis by RateCity.

Of the 95 lenders in the RateCity database selling car loans, around 14 of them have cut interest rates within the last three months, likely lowering the cost of servicing the finance. 

The rates dropped by an average of 0.76 per cent, the analysis found, and they come as the COVID-19 pandemic exacerbates a car industry that’s already struggling -- further transferring bargaining power from carmakers and towards buyers.

The lowest rate in the database is being offered by Northern Inland CU at 2.99 per cent (comparison rate of 3.6 per cent), followed by Australian Military Bank at 3.6 per cent (comparison rate of 4.51 per cent).

These rates are lower than what’s on offer from the big four banks, as of the time or writing. In comparison, Commonwealth Bank is offering car loans from 6.99 per cent, followed by Westpac at 7.49 per cent, according to the RateCity database.

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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Learn more about car loans

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments. 

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!

What is depreciation?

Depreciation is the reduction in the value of your car. Almost every car loses value each year, although at different rates. As a guide, cars depreciate on average by 14 per cent per year in the first three years and then eight per cent per year after that.

What is resale value?

The resale value is the price you could realistically charge if you were to sell your car. Almost every car loses value each year, although at different rates. As a guide, cars depreciate on average by 14 per cent per year in the first three years and then eight per cent per year after that.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

How much is my car worth?

If you own a car, it may be something that can help you bring down the cost of your next vehicle purchase through its sale. However, before you can do that you’ll want to find out how much your car is worth.

Your car’s worth can depend upon various aspects, including:

  • Age
  • Condition
  • Model and make

A great starting place for aspects of this includes websites that offer online valuations, allowing you to enter your car’s make, model, year, badge and description, with the listed results displaying a price guide based on both selling your car privately and through a dealership.

Both have pros and cons, as cars can be very profitable, something that will no doubt impact any chance you have to make the most of your car’s value upon sale. Dealerships will try to profit on your trade-in by buying it for less than they can sell it for, so you shouldn’t expect the same price selling a car to a dealer that you would necessarily get selling a car privately.

What is an LVR?

The LVR, or loan-to-value ratio, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have an LVR of 75 per cent. LVRs change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the LVR would now be 67 per cent.

What is equity?

The equity is the share of the car that you own. For example, if you take out a $15,000 loan to buy a $20,000 car, you have $5,000 of equity in the vehicle, or 25 per cent. (The lender has the other 75 per cent.) Equity changes over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, you would still have $5,000 of equity in the vehicle, but your share would be 33 per cent.

What is the luxury car tax?

The federal government imposes a luxury car tax of 33 per cent on the value of a car above a threshold. As of the 2017-18 financial year, that threshold was $75,526 for fuel-efficient vehicles and $65,094 for other vehicles. So a fuel-efficient car worth $80,000 would be taxed only on the difference between the threshold and the value of the car ($4,474), rather than taxed on the entire $80,000. Similarly, an ordinary car worth $70,000 would be taxed on the $4,906 above the threshold, rather than the entire $70,000. The luxury car tax is paid by dealers that sell or import luxury cars, and also by individuals who import luxury cars.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

What is a variable-rate loan?

A variable-rate loan is one where the lender can change the interest rate whenever it wants. For example, if you sign up for a variable-rate loan at 8.75 per cent, the lender might change the interest rate to 8.90 per cent the month after and then 8.65 per cent the month after that. By contrast, if you take out a five-year fixed-rate loan at 8.75 per cent, the lender is obliged to leave your interest rate at 8.75 per cent for at least five years.

What is an interest rate?

The interest rate is the price you have to pay for borrowing money. The interest rate is expressed as an annual percentage of however much of the loan remains to be paid. For example, if you took out a $10,000 car loan with an interest rate of 8.75 per cent, you would be charged 8.75 per cent of $10,000, or $875 of interest per year. But if you then reduced the outstanding loan to $9,000, your annual interest bill would be 8.75 per cent of $9,000, or $787.50.

Where can I find car loans for single mothers?

Single mothers can sometimes find that due to their circumstances the bigger banks can be less inclined to lend to them, but there are smaller companies and specialist lenders who can be willing to provide loans to people in a range of circumstances.

Single mothers could benefit from getting in touch with a car finance broker, as a broker is likely to have knowledge and access to options that are suited to their needs.

Advantages to using a broker:

  • Finance brokers often don’t charge for their services as they work on a commission basis from lenders.
  • Brokers will have industry knowledge and contacts within lending companies and is therefore more likely to be able to find the best deal for your circumstances.
  • Brokers are qualified professionals who are licensed under the National Consumer Credit Protection Act so have an obligation to follow responsible lending practices and to work in your best interests.

Find car finance through a broker.

I’ve been denied a car loan before; can I still get car finance?

Even if you’ve been denied a car loan before, you might still be able to get car finance. The key is to make the right application to the right lender.

The ‘right’ application is one that makes you look like an acceptable risk, which might include things like improving your credit score, increasing your savings rate and accumulating a bigger deposit.

The ‘right’ lender is one that deals with borrowers like you. For example, while some car loan lenders only deal with good credit borrowers, there are others that specialise in bad credit or poor credit borrowers.