Making the decision to buy a new car is a very exciting time and it’s quite normal for emotions to play a huge part in the decision making process. Unfortunately, many car dealerships are very good at manipulating your emotions to ensure they get the sale so they can make the most money possible out of the deal.
Negotiating the price on the purchase of your new vehicle is just the first opportunity the car dealership has to make money out of you. Once you have agreed on the details of your new car purchase, the dealership then has a second opportunity to make a bit more money from you.
It’s likely you’ll sit down to chat with a friendly young lady who will cheerfully explain all the added options and accessories available for your new vehicle – at an extra price, of course. By the time you add paint protection, extended warranty options, upgraded wheels, tow bar add-ons, and various other extras, it’s likely you’ve spent more money than you anticipated.
But wait… there’s more
Making money from your new car purchase doesn’t stop there. Car dealerships also offer you the chance to get your finance through them too.
If you agree, you’ll be taken in to meet the finance manager of the car yard, who will be extremely willing to help you get the finance you need to buy your dream car. What you may not realise is that the dealership’s finance guys are experts in making money for the yard.
Many car finance managers will play on your emotions to ensure you get your new car as quickly and easily as possible. They’re banking on the fact that you’re not really focused on your finance. Instead they’re hoping you’re still excited about the idea of driving your new car out of the yard.
Recognising the tricks
Car finance managers use many tricks and techniques to ensure they make as much profit from you as possible. If the car yard salesperson offered you substantial discounts in your initial negotiations, the finance manager will work hard to try and recover any money you thought you saved on the discount.
Another common trick many car finance managers will use is to offer seemingly-low interest rates. They know many people don’t truly understand how financing terms work, so mentioning a cheap interest rate is usually enough to get them to sign the forms.
Low rates combined with long finance terms and high balloon payments sound as though your monthly repayments are really cheap. However, when you look more closely at the terms and conditions of your car loan, chances are any money you saved negotiating the price of your new car has been wiped out and handed straight back to the dealership in finance commissions.
Other common car financing tricks include:
- Making the finance contract as long as possible: In most cases, as long as 7 years. Longer terms minimise your monthly repayments, but you finish up paying more interest over the loan term. By the time you pay off your loan, you’ll have paid over half the amount you borrowed in just interest payments.
- Increased loan amount: no matter how much you thought you were paying for your new car, your loan amount will be increased to include the originator fee paid to the dealer.
- Higher-than-normal interest rates: Interest rates at a dealership are often double what can be obtained by a good broker.
- Added insurance products: your finance contract may include added insurance products you don’t need and generally only cover you for the first 12 months. The dealer will often get you to sign for these while they distract you with small talk about your new car.
- High-pressure sales tactics: Pressuring you into signing up for finance straight away is a common trick with car finance managers. You probably spent weeks researching the purchase of your new car, why wouldn’t you do some research on the finance product?
- Market to Market Clawback: Often these car loans include excessive break charges or exit fees which make it costly should you wish to refinance your loan with another financier later.
- Hidden Terms and Conditions: Always take the time to check the terms and conditions on loans with low interest rate offers. Generally these deals only apply if you pay the listed price on the motor vehicle, which negates any discounts you might have negotiated.
Avoiding the tricks
One of the easiest ways to avoid being duped by finance managers in car dealerships is to shop around for a car loan that suits your financial needs before you go out hunting for a car. Take the time to research different interest rate options and ask questions until you understand the terms being offered.
It’s also a good idea to apply for a pre-approval before you head out shopping. If you’re armed with the knowledge that you can get finance before you enter the dealership, the finance manager is unable to pressure you into signing anything.
If you are thinking of buying a new car, take the time to speak to an accredited mortgage broker. Unlike the car dealership who only has access to one financier, we have access to over a dozen lenders and can help you find a lender that suits your needs.
If you do submit an asset finance application (eg. a car, motorbike or boat loan) that settles prior to 31st December, you’ll go in the running to win a $250 shopping voucher of your choice.
Call Nieuvision today on 1300 832 554 to discuss how we can help you finance your new car with the right lender at the best rates.
Finance & Property Consultant
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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.