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Consumer car loans are a quick and cash-effective method of purchasing a vehicle for personal use. They are available through almost all lenders, and most large dealerships offer on the spot financing which is quickly approved to anyone with steady income and clean credit record. At first glance, a car loan from a dealership can look like a great option, however the convenience is often offset by higher costs and unscrupulous contracts.
In this article, we explain four of the most common traps of on-the-spot dealership financing, and show your alternatives to obtain a better deal over time.
All too often we see dealership finance advertising with a strong focus on low monthly repayments, misleading the buyer into assuming a low overall rate. At the end of the loan term, buyers are shocked to find that they owe a residual lump sum payment and their low monthly rate did not contribute significantly to the debt reduction over time.
A balloon or residual payment can be a good strategy in certain circumstances, for example for those with seasonal income, or for loans the option to upgrade the car at the end of the loan term. Speak with a Speedy Finance specialist to determine which structure would best help you reach your long-term financial goals.
Cash price vs finance price
Car dealerships regularly advertise low or no interest loans to attract buyers and encourage a quick sale. Whilst it is not a scam as such, the cost of 0% loans is always recovered somewhere in the sale. Usually, the dealership will charge hefty fees on the financed amount in order to offset the 0% interest. In other cases, the price of the vehicle will actually be higher when purchased using dealership finance compared to cash payment on the spot.
By taking a car loan from an independent provider like Speedy Finance, you are able to offer full payment in cash and negotiate on the purchase price of the vehicle. In many circumstances, the small amount of interest paid on the car loan can be less than the thousands of dollars discounts that can be negotiated on the cash purchase.
Car loan vs car lease
Before signing any car finance agreement, ensure that you understand the difference between a lease and a loan. A lease is an agreement whereby the financier provides the car to you at a fixed monthly payment. At the end of the lease term, ownership of the vehicle is retained by the finance company and you may need to pay a large lump sum to purchase the vehicle. On the other hand, a loan may involve the financier taking a mortgage over the car as security, however at the end of the loan term the mortgage is released and you retain full ownership.
Both car leases and car loans have their benefits and drawbacks, but the structure should really be tailored to your personal goals and circumstances. At Speedy Finance, our advisers will ensure that you understand the terms of your car loan and help to create a loan structure that works for you.
As discussed above, low interest car loans offered by dealerships generally need to recoup the cost of lending through other means. It is not uncommon to be pushed extra insurances that serve limited purpose whilst arranging your vehicle finance, so take your time to ensure that these “extras” are in line with the market. Although loan cover and full vehicle insurance are highly recommended, be aware that you cannot be forced to purchase these insurances as a term of the loan.
Whilst on the spot car financing saves you the hassle of visiting a lender, it often costs significantly more over time. At Speedy Finance, we work with you to get the best deal and ensure that the car loan aligns with your long term financial goals. Contact us now to discuss your personal car finance needs and find a deal that works for you.