Car finance: What you need to know before signing up
New car sales are plummeting as consumers shy away from driving the latest set of wheels.
Motor vehicles are renowned for being a depreciating asset, and once they are driven out of the showroom they immediately lose value.
Federal Chamber of Automotive Industries figures show in 2019 car sales fell to 1.06 million – down 7.8 per cent on the previous year.
This is the lowest level since 2011.
So when making a new, shiny purchase, be careful if signing up to car finance.
Not only do you have to meet monthly repayments but you also must factor in the costs of running the car including registration fees, insurance, petrol, repairs, maintenance and road tolls.
Casey Barnard, 25, from Brisbane, works in the medical industry and this month purchased a new Mazda CX-5.
The popular SUV cost her $31,500 and she signed up to a four-year loan for $31,000 with an interest rate of 4.69 per cent.
“I have savings – however, they are in the case of an emergency so I borrowed the entire amount,” Ms Barnard said.
“I have a good income so I’ll create an account for my car to put aside money for my repayments.”
Loans.com.au managing director Marie Mortimer urged consumers to organise finance before hitting the car yard.
She said typically borrowers took out a three to five year loan and the average loan size was $28,000.
“Cars are like any service: if you don’t shop around you will pay too much,” Ms Mortimer said.
“It’s really important to get pre-approval before you go to the dealership because it really strengthens your position.”
Dealers often provide very low or no-interest finance deals, but a borrower could end up paying a higher price for the vehicle by signing up to in-house finance.
And borrowers need to check if they are paying a fixed or variable rate on the deal.
Financial comparison website RateCity’s chief executive officer, Paul Marshall, said borrowers shouldn’t “be fooled into thinking they’re getting a great deal by looking at the ‘advertised rate”.
“Advertised rates don’t include fees,” he said.
“A low or zero interest-rate period can be very tempting but often these types of car loans revert to a high interest rate once the honeymoon period ends.”
RateCity’s database showed the lowest fixed rate car loan deals start from 4.73 per cent.
Some borrowers may face a balloon payment – a one-off lump sum paid to a lender at the end of the car loan’s term that can be a large portion of the car loan’s balance.
Originally published as What you need to know about car finance