Drive away with a better deal

Be wary of the lure of dealer finance when you are buying a car, writes Sophie Elsworth

MOTORISTS hunting for a new set of wheels can easily get caught up in the dealer’s showroom and end up paying too much.

Buyers can be lured by the shiny new vehicle oozing that new car smell, but end up badly stung by signing up to car finance that is not competitive.

Latest Australian Bureau of Statistics figures show in April this year $575.5 million in new vehicle loans were written and the average loan size is about $36,000.

And finance for used cars was not far behind, totalling $438.5 million or an average of $21,000 per loan.

But People’s Choice Credit Union’s spokesman Stuart Symons has warned before you sign the dotted line, get your finance in order.

“Do the research about the make and model and have a reasonable idea of how much you need to borrow versus whatever you might get from a trade-in,’’ he said.

“Do this before you get too far down the track of stepping into the car yard … often the banks and credit unions will have more competitive offers than the finance you might get from the car yard.”

Financial comparison website RateCity found some of the best low-rate car loans start with comparison rates – this includes most fees and charges – at 5.29 per cent.

On the average new car loan of $36,000, over a five-year term at a rate of 5.29 per cent, monthly repayments are $684. Total loan costs would be $41,040 over the full term of the loan.

Many finance deals also come with establishment fees which can be several hundred dollars, and some also have monthly account-keeping fees.

RateCity spokeswoman Sally Tindall said consumers can sometimes pay more by using car dealerships.

“Sometimes if you go into a dealership and get car finance you don’t get a discount on the car so you pay for it through an increased price of the vehicle,’’ she said.

“If you are interested in dealer finance, go to a different dealer and find out how much you could buy that car for that’s not on finance.

“Then work out how much you are paying on finance.”

Also be wary of balloon payments if they apply. These are one-off lump sums that you pay the lender at the end of the car loan’s term. They reduce the car loan repayments made during the loan term but you can end up paying more in the long run.