There has been an influx of car dealerships offering low interest or zero percent interest to finance a new vehicle, this looks great on the surface, and it will easily gain the attention of a lot of customers in Australia, but is it really a good deal?
Zero Percent Deals
These are generally for those who have a low monthly spending budget. It means that you will pay more over the life of the loan but it suits your monthly outgoings by not having to pay any interest.
If car dealerships are charging no or very little interest on their finance deals, they have to make a profit elsewhere which means that you will end up paying much more for your vehicle in the long run. Here are some of the ways a car dealership will make a profit outside of the interest rate:
- Price: On a zero percent finance deal, you will pay the full retail price. If you were paying for the car in cash, you would be able to negotiate for a lower price.
- Trade in Value: If you are trading in your old vehicle at the same time as getting zero percent interest on a new car, you will get a lower trading price than its actual value.
How can I avoid paying more?
There is only one way to avoid falling victim to unscrupulous car dealerships and that is to do your homework. Whether you are trading in your old car or purchasing a brand new one, before you walk into a car dealership, make sure that you are certain about the value of the car that you intend on trading in as well as the value of the car you will be purchasing.
You can also use a car loan calculator to work out how much your car loan rates will be. This will provide you with a clear idea of the cost of a typical finance arrangement.
You should also spend some time making car loan comparisons, don’t go with the first deal that sounds appealing because there might be something better for you.
Zero percent car finance deals are generally for those who have a low monthly spending budget. It means that you will pay more over the life of the loan but it suits your monthly outgoings by not having to pay any interest. If this sounds like you, before making a decision to take out a zero percent car finance loan from a dealership, make sure you have taken all available factors into account and conducted the proper research before making a financial commitment.