Car finance interest rate : prime less

[Dolby]

I've often seen these adverts (especially from BMW) advertising prime less 5 etc. I've always thought there was some trick somewhere (admin costs, other mohthly fee's etc) to make up the saving on interest rate.

Is there a trick?

Would it be possible to finance a car at sub 10% like the adverts make out?

 

[ToxicBunny]

Yes.. there is a trick..

THose deals are usually stipulated on a 30-40% residual value... so 6 years down the line you get screwed with a BIG payment... that is usually more than the car is worth at that point.

 

[simp]

Not always - have a good look at the terms and conditions on the deal you are interested in. Sometimes, a 'factory discount' is used to 'buy' a special interest rate.

What this means is that the manufacturer/factory/whatever offers a sizeable discount to dealers. The dealer then invests this discount with the financial institution they use to finance customer deals, and offset interest earned on this 'investment' against interest their customers would pay on a finance deal. You still pay the standard purchase price.

You'll have to scrutinize though - I haven't seen this specific kind of deal offered in a number of years. VW SA pioneered it locally about 12 years ago on Audis.

 

[arf9999]

Under the NCA the dealer is required to disclose all the terms and conditions. You should be able to directly compare the full amount that you'll pay.

Mostly these deals use in-house financing, so they sacrifice some of the profit that a bank would make in order to increase their sales. The catch is usually that you'll be buying the car at the full price before you get the discounted financing. You need to compare the outcome between that and the price that you can negotiate using external financing (through another dealer, naturally), and see the net costs for both. If you're trading in a vehicle, you'll find that you'll generally be able to negotiate an as good, or better deal without the "cheap" finance.

 

[mikef]

Reduced rate financing (the lowest I remember seeing was 0%) is just another form of discount. As most people do not perceive this as a price reduction it helps to some extent to protect the resale value of the vehicle model on the secondhand market.

 

[rorz0r]

Yes.. there is a trick..

THose deals are usually stipulated on a 30-40% residual value... so 6 years down the line you get screwed with a BIG payment... that is usually more than the car is worth at that point.

I disagree with that. You are not "forced" to pay the residual and keep the car. You can simply give it back if it is worth less than the residual value. Because of this the max residual offered is the worst value the manufacturer estimates it will be worth after however many years.

 

[ToxicBunny]

Ummm sorry..

You can't just "give" back the car if you can't pay the residual... you are liable for that money.. regardless of whether the car is worth it or not...

You can refinance the residual, cover it in tradein, and SOME dealers offer a guaranteed buyback to the value of the residual but not all of them.

 

[semiautomatix]

Yes.. there is a trick..

THose deals are usually stipulated on a 30-40% residual value... so 6 years down the line you get screwed with a BIG payment... that is usually more than the car is worth at that point.

Buy the right car and you won't have a problem. The resale should more than cover the residual amount. And if you don't want to pay the residual you can always refinance the vehicle for the remaining amount.

 

[ToxicBunny]

Yeah I know.. but those really nice "deals" (I Was looking at an Audi on a deal like it) are just DODGY...

45% residual, which only became payable after 6 years.... After 6 years there is NO way the car would only have lost half its value.

 

[semiautomatix]

Yeah I know.. but those really nice "deals" (I Was looking at an Audi on a deal like it) are just DODGY...

45% residual, which only became payable after 6 years.... After 6 years there is NO way the car would only have lost half its value.

You'd be surprised. My Audi has lost 15% of its value after 3 years; in 6 years that could well be only 30%-40%.

 

[ToxicBunny]

tim : Have you actually tried to sell it or basing that off what ppl are asking for theres?

I've already seen an Audi that I was going to buy being sold 15% less than what it sold for new last year...

 

[semiautomatix]

tim : Have you actually tried to sell it or basing that off what ppl are asking for theres?

I've already seen an Audi that I was going to buy being sold 15% less than what it sold for new last year...

That's the current second hand selling price and the current market value according to insurance companies, it is also 10% more than the trade in value I've been offered. Buy the right car and you won't lose too much in the resale.

 

[ToxicBunny]

Fair enough, buy the right car and you won't lose too much..

But I've just rechecked.. I was looking at +- R345000 for the Audi I wanted...

2nd Hand now I've just had another look and I've just seen one or two in the R280k range...Thats a pretty big hit for a years depreciation.

 

[semiautomatix]

Fair enough, buy the right car and you won't lose too much..

But I've just rechecked.. I was looking at +- R345000 for the Audi I wanted...

2nd Hand now I've just had another look and I've just seen one or two in the R280k range...Thats a pretty big hit for a years depreciation.

You must remember its not only who manufactured the car that determines the resale value. It important but also your model and engine size make a big difference - certain models are more sought after than others for any particular manufacturer.

EDIT: also the current vehicle price hike has done much to increase the value of second hand models.

 

[ToxicBunny]

Yeah... gets very complicated and also why I've never bought a car for the image it gets me.. but rather its "resale" value and its quality and safeness... image is irrelevant.

 

[semiautomatix]

Yeah... gets very complicated and also why I've never bought a car for the image it gets me.. but rather its "resale" value and its quality and safeness... image is irrelevant.

Actually the "image" cars can be the ones with the best resale, remember if you want to drive it so does someone else probably does to and they may be unwilling to fork out the cost of a brand new car.

I didn't buy my car for the resale value, and I added quite a few extra which I will never recover. But I told myself its a vehicle I'm going to spend every day in for at least the next 5 years, I might as well enjoy it.

 

[ToxicBunny]

Thats the one thing that drives me nuts about this country...

getting extras adds NOTHING to the value of the vehicle...

 

[JayM]

Thats the one thing that drives me nuts about this country...

getting extras adds NOTHING to the value of the vehicle...

But it does make the car easier to sell later on.

 

[Dolby]

But it does make the car easier to sell later on.

True. I'll rather wait months to find the car with what I want than buy it and be 'unhappy' for 5 years

 

[Fazda]

A car that you can easily smack a fat residual on to is the Mini Cooper, as it holds its value very well. When I was with Sakers many years back, we calculated that you could sell a Golf Cabriolet at just under 100% residual, and still have no problem getting rid of it in the end.

I have bought on residual for years, and have only refinanced a car once, simply because there was nothing on the market that caught my eye when I came to the end of the lease. At that stage it was not worth working out what I finally paid for the car in the end...suicide stuff!!