02.Car manufacturer finance
Car manufacturers are good at dangling irresistible deals in front of consumers with visions of shiny new cars dancing in their heads. Zero per cent interest, for instance, can lure in even the wariest of car buyers. But before signing on the dotted line, it’s imperative you check the fine print.
If you’d been in the market for a Nissan in June 2013, for example, you’d have been offered a range of low interest rate deals, including a zero per cent rate for the Nissan Dualis and 1.9% for the Nissan Leaf, the latter of which required a $10,000 deposit and weekly repayments of $85 – which sounds very affordable for a $40,000 car. Too good to be true? Sadly, yes – these repayments only applied to part of the loan amount, and after the three-year loan period, more than 50% of the RRP – $21,495 – would be due as a lump sum (what’s known as a balloon payment).
Kat Lane, principal solicitor of the Consumer Credit Legal Centre in NSW, has asked ASIC to investigate this. “A reasonable consumer would assume the interest rate applies to repay the whole of the loan, not part of it,” she says. “As a car loan can be relatively large, many consumers may not be able to afford to pay a balloon payment of 50% of the loan amount.” Those who can’t would have to take another loan to keep their car.
Even more dangerous are so-called “guaranteed future value offers”. Under such an offer, you could buy, for example, a manual Nissan Pulsar for $49 a week over three years. At the end of that period, you must make a balloon payment of 70% of the RRP to hold on to the car. These offers, which are also available from car manufacturers such as Toyota, BMW, and Mercedes, work more like a rental than a loan.
Low interest rates - if you have the money and leave it in your mortgage offset account, you can save interest.
Lump sum payments can be unaffordable and you may have to take another loan if you want to keep the car.
Tip: Check the fine print. Is there a lump sum (balloon) payment? How long is the term of the loan? Does the comparison rate apply to the whole amount and term of the actual loan?