06 Jan

Low Interest or No Interest Car Financing

Every year we seem to go through this – we get asked “the dealer is offering 1% financing options – can you beat this?”

Actually I can, but it will be at the standard rate, and a cheaper price on the car......


How does it work?

There is no doubt the low interest rate being advertised to finance the vehicle purchase is legitimate. However, these finance offers are typically part of what the industry calls a ‘subvention’ finance program as the low interest rate for the finance package is being subsidised by the dealer or manufacturer out of the profit made on the sale of the car.



Assume you purchase a new $35,000 car which is being sold in conjunction with subvention finance at an interest rate of 1%. The loan term is 48 months with a nil residual at the end of the contract.

Depending on the lender who is providing the finance, the ‘subvented’ amount in this scenario may be anywhere between $2,500 and $2,900. In other words, once the transaction has been finalised, the car dealer or manufacturer must ‘pay’ the subvented amount to the lender to enable a realistic rate of return to be made on the finance contract.

The dealer will now need to make a larger margin on the car to be able to pay the subvented amount and maintain their normal margin. Meaning you may have been able to negotiate a larger discount to the asking price if the purchase was not subject to subvention finance.

Remember: The higher the purchase price of the car, the more you will pay for items such as GST, stamp duty and potentially luxury car tax.


So....how do you work this out?

The best approach is to negotiate a cash sale with the car dealer leaving the low interest rate finance offer out of the equation. It is not unrealistic to obtain a discount of approximately 8% to 10% off the asking price if it is not subject to such finance arrangements.

We often find that once a discounted purchase price has been negotiated, our clients who arrange finance through us at ‘normal’ market rates typically end up paying lower monthly repayments (thus lower total repayments) over the term of the finance contract than they would through obtaining subvention finance.

The old maxim that ‘there is no such thing as a free lunch’ certainly applies to low interest rate car finance deals.

Give us a call to compare our low interest rates and while on the phone ask about getting a better deal on your new car.  We have access to car buying services that can negotiate fleet discounts, which will save you hundreds of dollars on your new car purchase.

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