Best Tips to Avoid Being Ripped Off by Low Interest Car Finance Deals

One big misconception about car financing is that buyers think dealerships are the ones who provide us with the loans. Actually, it is their partner banks and other lending institutions that lend the money. It is important that we know: dealers are middlemen. Thus, they get something out of selling those loans. Because of that misconception, buyers commit the biggest mistake of not preparing enough and taking time to shop for better car financing offers.Because of that, many still fall into car finance traps such as the following:

  • Dealers include unnecessary products and services into your loan payment – those that you didn’t really ask for. In that way, even if the interest is low enough for you, they’d still be getting enough commission/profit from your monthly loan payments.
  • The dealer lets you take the car home even if that low interest loan isn’t approved yet. Then you get a call that it wasn’t approved; not knowing that there isn’t really a low interest offer at all. In the end, you’ll have no choice but to go back to the dealership and signing off a loan that’s got a higher interest rate.
  • In the event that you have no idea about your credit standing, dealer takes advantage of it by telling that you have a poor credit score. Because of that, you’ll think of them as your savior or hero because they’d appear to have miraculously got you an approved loan – well only, it has a very high interest rate; thinking that that’s your only option.
  • You’re not aware that the dealers put a high interest markup on your loan computation. In the industry they often refer to it as, “dealer reserve”. Let’s say you are really approved by the bank for a 6% loan, but the dealer tells you that the approved rate is 8.5 or as high as 10%. The other percentage added acts as profit of the dealers.
  • Know that dealers have absolutely no obligation to provide you with the lowest interest rates. Thus, they will take advantage of the bank or lending institution that will provide them with the highest commission or incentive. For example, Bank A approves you for 5% interest but only gives 1% commission to the agent. Bank B approves you for 6.5% interest but provides 3% commission to dealers. Which one do you think they’ll use? Of course. They’ll tell you that the lowest rate you got was 6.5%.

As one of Melbourne’s leading car buyers and car removalists who have been in this industry for more than 20 years, we are here to provide you with some tips so you could easily avoid the aforementioned car finance traps:

  • Research on the current car loan interest rates and find out about your credit score.
  • Scout several banks and some credit unions that you trust. Inquire well about their car financing loans.
  • Get pre-approved. Apart from being your shield, this will provide you more negotiating power upon arriving at the dealership.
  • Ask if the low finance rate they’re offering is attached as a promo with the price of the car. If not, try your best to negotiate with the list price as well. Trick is: start negotiating with the price THEN the monthly payments (and interest) after.
  • When you’re about to decide, compute the total monthly costs with interest VERSUS the monthly payments with rebates. If you are planning on keeping the car for at least 5 years, opt for the 0% financing option. But if you only see yourself 2-3 years with that car, better get the rebates instead.
  • Before signing any loan contract, read and understand all the terms carefully. Ignorance of any stipulation won’t protect you from anything. So ask all the questions you can think of. See if you can get them to reveal any hidden charges.
  • Don’t be afraid to request for any dealership freebies. If they’re getting commissions and incentives because you signed a loan with them, don’t you think it’s just fair to get as much discounts or even free car accessories in return?

In a nutshell, just do your research and have your car finance loan prepared before going to the dealership. This is the best you can do to avoid getting ripped off by those tempting low-interest finance deals.