Before you find a car and sign on the dotted line, there are a few things you should know. Here are a few questions you might want to ask the car dealer before you drive away with your new wheels.
Is there a balloon payment?
A balloon payment is a large lump sum paid out to the lender at the end of the loan term, after all regular monthly repayments have been made. This is also known as the Residual Value.
The lump sum payment at the end of the loan term will generally account for a large proportion of your loan’s balance, and so your loan repayments over the term of the loan can be reduced as a result.
These loans are common in leasing agreements but are also used in car finance.
If you have other short-term financial commitments (that you’ll clear before your car loan ends), this option might be worth considering.
Are the repayments all-inclusive?
It’s not uncommon for finance offers to include costs like stamp duty, servicing and insurance. This means your repayments will include these costs, plus the purchase price of your car.
While this might seem like a great idea, remember you’ll be paying fees and interest on the total amount you borrow.
Also, be mindful that you may not get to choose who insures or services your car. These costs are generally cheaper if you shop around and choose your own insurer or mechanic.
Does the dealer get commission?
Car dealerships get commission when you purchase a car – and a higher commission when they use their own finance company.
Though this type of finance can be quicker and easier, keep in mind they’re making money from your purchase.
This means the car price may be inflated, because the higher the price of the car, the higher the loan and the higher their commission.
Do I need an extended warranty?
Car dealers also earn a commission from ‘add-ons’, such as extended warranties and alarm systems.
Be sure you understand exactly what your finance agreement covers and do not sign anything until you understand what’s included.
Extended warranties tend to be expensive and there are laws to protect consumers from being pressured into purchasing them.
Remember you have protection under the Australian Consumer Law, (ACL), even after your warranty period has ended.
Can I see the invoice price?
This shows you the exact itemised price of the car. For instance, you may pay $20,000 for a car that’s actually worth just $18,000.
That extra $2,000 might be made up of car mats, mud flaps, bull bars and so on. These items can often be bought outside of the dealership for much less.
Important questions to ask the car dealer
If you’re buying a car through a car dealership, print off these questions and take them with you.
Are you buying your first car?
If you are young adult and haven’t yet set up a bank account or made a large purchase before, have a look at:
Interest rates
- Is the loan fixed or variable interest—and can I choose either?
- What’s the annual interest rate?
- Is the rate influenced by my credit rating?
- What is the comparison rate—are there added fees in this rate?
- Is it an introductory rate, and if so what is the rate once it expires?
Fees
- Is there an application fee?
- Are there administrative or monthly servicing fees?
- Is there a fee to pay off my loan early?
- Can any fees be waived?
Repayments and loan terms
- What is the minimum and maximum loan term?
- Can I make extra repayments without penalty?
- Can I redraw from the loan if I’m ahead of my repayments?
- Is there a balloon payment at the end of the loan?
- If so, how much will this be?
Commission
- Are you being paid commission by the finance company?
- How does your commission get calculated and paid?
- How much more do you add to the interest rate to cover the commission?
Don’t be afraid to ask
- Is that the best deal?
- Can you throw in car mats, paint protector, rims, alarm, sunroof, spoiler, tinted windows etc for free?
- What’s the invoice price of the car?
- What’s the best trade-in price?
If you would like assistance getting your accounts under control as we approach the end of financial year, call us today on 1300 79 80 38.
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At Assure Wealth we specialise in helping busy, successful families structure their finances to achieve greater wealth and financial peace of mind.
Author: Pat Casey – Managing Director & Financial Planner Sydney – Assure Wealth
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Disclaimer: The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Walker Lane Pty Ltd Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Walker Lane nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.
Assure Wealth Pty Ltd ABN 31 965 466 780 Corporate Authorised Representative no. 1244817, Patrick Casey Sub-Authorised Representative no. 1244748 of Walker Lane Pty Ltd ABN 70 626 199 826, an AFSL holder No 509305.
