Is 2.9% misleading?

[daigua119]

Hi folks,

I just bought a Territory TX Limited petrol for $38050, attracted by the advertised 2.9% finance rate. Before I signed the contract, the finance man on behalf of dealer told me there will be some fees or charges to go with finance, but the true rate is 2.02%, lower than 2.9%, so that it will be as if 2.9% rate without any fees or charges. I am happy with that.

After the I paid $3805 as 10% deposit and picked up my car, I found the final finance contract issued by Macquarie Leasing is as below:
Rate 2.02%
Asset cost $38,050.00
Deposit -$3,805.00

Financed amount $34,245.00

Establishment fee $350.00
Origination fee $750.00
Registration fee $7.40
Stamp Duty $85.00

Total amount financed $35,437.40

Term 48 Months
Balloon 0
Net Payment $769.13

Account keeping fee $5.50

Monthly Payment $774.63

I tried loan calculator myself, by setting loan amount as $34245 (which is $38050 - $3805), rate as 2.9%, term as 48 months, I got the result of monthly payment at $756.48. That’s less than $774.63
If I set loan rate as 4.1% and loan amount still as $34245, it shows monthly repayment at $774.76, which is very close to $774.63

So I feel like I didn’t get 2.9% comparison rate, and in fact 4.1% is reflecting how much interest I will pay for the $34245 I borrowed.

Am I right or I misunderstood something? Can anyone please help me out?

[Smoke Pursuit]

The loan amount is $35,437.40, 48 payments at 2.02% I calculated $767.84.

If I put your payment in it comes out at 2.11%

Close enough.

The 2.9 they suggest is based on $30,000 over 60 payments... This will change based on the term / loan amount (as per the fine print).

The only thing that worries me is that the comparison rate of 2.9% is quoted on 60 months, while you can only have a maximum of 48 months. That in itself is a bit misleading, but its there in black and white.

Calculating it based on your original cost ex the Bank establishment fees my system shows a rate of 3.9%... Still alot cheaper then the base rates of 5.99% most banks are offering, plus most of them still charge a document fee of some description which you have to pay up front.

[tweeked]

answered above

[Smoke Pursuit]

Originally Posted by tweeked

Rego only 7.40?

I would say any loan fees (establishment interest etc ) would be included, but not regular on road costs that you would pay if buying for cash (Stamp duty, Rego etc)

That $7.40 is to register the finance companies interest on the car on the PPSR or new Revs system... Nothing to do with on road costs.

[Joe5619]

Originally Posted by DASH GT

The 2.9 they suggest is based on $30,000 over 60 payments... This will change based on the term / loan amount (as per the fine print).

The only thing that worries me is that the comparison rate of 2.9% is quoted on 60 months, while you can only have a maximum of 48 months. That in itself is a bit misleading, but its there in black and white.

That part is a legal requirement for all car loans I believe. If you look at the fine print on any car loan you'll see the same thing.

[Smoke Pursuit]

Originally Posted by Joe5619

That part is a legal requirement for all car loans I believe. If you look at the fine print on any car loan you'll see the same thing.

Looks like Toyota does the same, so your right.

[davistev]

I think the biggest scam are the fees for:

Establishment fee $350.00
Origination fee $750.00

That is $1,100 to set up a loan. IMO - a customer should not have to pay extra to buy their vehicle on terms. That is of course what "interest" is for - yes?

I know it is industry practice but only because consumers have been forced to have these type of hidden charges shoved down our pipes.

[Peter B - CV8]

Origination Fee = Dealer commission for arranging the finance.

[phillyc]

Originally Posted by davistev

I think the biggest scam are the fees for:

Establishment fee $350.00
Origination fee $750.00

That is $1,100 to set up a loan. IMO - a customer should not have to pay extra to buy their vehicle on terms. That is of course what "interest" is for - yes?

I know it is industry practice but only because consumers have been forced to have these type of hidden charges shoved down our pipes.

Most loans, regardless of lender will have some fees attached. You may not be happy to pay those fees, but they are at least spelt out (ie not hidden) and they are included when the comparison rate is calculated.

2.9% finance on a CAR is bloody cheap. Go to a bank and see what they want...

[davistev]

Originally Posted by phillyc

Most loans, regardless of lender will have some fees attached. You may not be happy to pay those fees, but they are at least spelt out (ie not hidden) and they are included when the comparison rate is calculated.

2.9% finance on a CAR is bloody cheap. Go to a bank and see what they want...

Agreed - No bank would offer me 2.9% rates. I recently got a Nissan Maxima at 2.9% Financing from Nissan Finance with no Establishment Fee or Origination Fees. But they included a Dealer Delivery Fee of $1450. I guess the dealer has to try and make a profit somewhere but I put it that these fees are nothing more than an extra charge that allows the dealer to advertise a lower sticker price (unless it is stated "Drive a way").

[ShootsWithFilm]

No, its not misleading at all, you just need to understand exactly what the breakdown is.

I know that I did have some issues with the figures when we went through the process, but this was because the dealer did a bit of a half arsed job explaining exactly what went into the amount. Once we got him to explain it exactly, in our circumstance, it came close to 2.9% for the term of our loan based on the car purchase price - the deposit (the trade in made up part of the deposit amount).

The fees will make up the differences, but you will find that you will get the same malarkey regardless of where you go.

From my experience, there needs to be a better job done on explaining the exact break down of the deal. The important thing for me is that the wife was happy with the break down (she is an accountant and understood and accounted for everything they threw at her).

(PS, the dealer did stuff up our repayment date....panic ensued when the money wasn't taken from our account on the expected date... A few quick calls to McQuarie sorted that.)

[Drizz06]

Lots of useful info here!
And congrats on the new Tezza.

[gtfpv]

my friend also bought a car 2012 fg xr6 mkii with leather and extras for 37990 driv away on a 2.9 % deal . he told me his repayments would be $760 p/mth for 4 yrs with zero balloon . remarkedly similar to your figures .

now as my xr6 came off a novated lease last month i would like to make similar comparisons to the deal i got in 2010 at F.B.T 11% <<< WHICH YOU CANNOT GET TODAY .

YOUR CAR ##### $35500 OVER 48 MONTHS @ $775/MTH / 31 DAYS =APP $25 per day . rounded up .
25x7 =$175 per week fuel $80 rego $20 ins $20 tyres $15 maint $10 = TOTAL $330/WK TOTAL COST OVER 208 WEEKS =$68640 + deposit $3800 = $72440.
or $1509/mth for 48 months . total $72440

MY CAR $34500 leased , residual after 36 months =$16300.
total net cost all inclusive = $244 pw X 52 X 3 = $38064 + 16300 = $54 364
and i have to then add 1 more years running costs of fuel $80 + rego $20 + ins $20 + tyres $15 + maint $10 X 52 weeks = $7540 + 54364 = $61904

your car privately - ( net) over 48 mths = $72440 origional purchase $38000

my car novated - ( net) over 48 months = $61904 origional price $ 34500

now taking off your dearer car to even it up yours is rounded $69000
mine is rounded $62000

the lease is $7000 cheaper over 4 years = $33 per week .

difference if cars were same price is yours = $330 p/wk your true cost $346
mine = $297 p/week .

the catch is the fbt rate is now fixed @ 20% . so i could not pay $297 p wk today .
it would be more like $337 for a 2012 XR6 .

MY 1ST RESPONSE TO MY FRIENDS AND YOURS CALCS WERE . THAT MATCHES OR BETTERS LEASING . AND IT SEEMS THAT IS RIGHT .

AN ACCOUNTANT ONCE BACK FORMULATED MY LEASE DEAL AND CONCLUDED THAT THE LOAN INTEREST IN MY LEASE WAS OVER 12% PA .
IF LEASING COMPANIES USE CAR LOANS OF A MORE MODEST 7% THESE DAYS , WHICH I DONT KNOW ABOUT THIS WOULD BRING THE LEASE WEEKLY NET COST DOWN A LITTLE . MORE AKIN TO THE $297 PER WEEK I WAS PAYING . but thats just guessing .

[davistev]

Thats a lot of calculating. Do you get to keep the car at the end of the lease?

[Sorted]

Gtfpv Of course your lease is cheaper as you have a risidual of $16.300 to pay out at the end of the tern

The op has $0 balloon or risidual at the end of the term

If the op had a balloon or risidual payment at the end of the term I am sure the 2.9% deal would be far better

At least that is the way I read it

[csv8]

Peter B- CV8..Origination Fee $750 ?? for dealer setting up the finance ?? $750 for doing nothing !!! then there is dealer delivery on top !! nice little money earner !!!!

[ShootsWithFilm]

Originally Posted by csv8

Peter B- CV8..Origination Fee $750 ?? for dealer setting up the finance ?? $750 for doing nothing !!! then there is dealer delivery on top !! nice little money earner !!!!

Why are people always suprised by this? The dealer is not a charity, they are there to make money. Yes, it may seem steep, but you should see what we charge our customers for some of the work we do! Its what makes a capitalistic society work. (I'm not going to say its right, but it is the way we live)

[jpd80]

2.9% comparative rate is good but be careful, the 48 month terms requires you to pay the loan out fully
but most repeat new car buyers would prefer a balloon payment at the end that equates to the residual value.

Now if you had the bulk of the purchase price there, putting $10,000 or $15,000 on finance could clinch a new car sale.
I see this as being more up the ally of $20K-$30K car purchases, $40K or $45K Falcon/Territory is a bit if a stretch.

[gtfpv]

Originally Posted by Sorted

Gtfpv Of course your lease is cheaper as you have a risidual of $16.300 to pay out at the end of the tern

The op has $0 balloon or risidual at the end of the term

If the op had a balloon or risidual payment at the end of the term I am sure the 2.9% deal would be far better

At least that is the way I read it

if you go through my post i included paying out the residual as well at the end and then calculated it over the whole 48 months so as to have the car fully paid for after 4 years just like the op . which gives it an apples versus apples .
and then i compared it to a 2012 price and lease today . and at the end of the day .
the OP , is getting a private new car sale at a very good price almost as good as leasing , he made the best choice in MY OPINION .
IMOP . leasing is gone out the window now that we can buy cars at discounted prices , and very low interest rates .

REASON : the OP will never owe more than the balance of the car , leasing you very much do owe more than what you borrow at the beginning of the lease . i myself thought there would be a catch when he suggested no balloon payment at the end and a 2.9% int rate . but this seems legit and a great rate .

[SteveJH]

Originally Posted by jpd80

2.9% comparative rate is good but be careful, the 48 month terms requires you to pay the loan out fully
but most repeat new car buyers would prefer a balloon payment at the end that equates to the residual value.

Now if you had the bulk of the purchase price there, putting $10,000 or $15,000 on finance could clinch a new car sale.
I see this as being more up the ally of $20K-$30K car purchases, $40K or $45K Falcon/Territory is a bit if a stretch.

I borrowed most of the money for my Focus, could have paid the majority up front, but the interest payments on the money in my bank account should be more then the interest on the loan, even with tax.

Plus no matter how much you borrow, you still have to pay the $750 origination fee and assorted other fee's, so the more borrowed, the lower the effective interest rate.

[Mrs P]

I agree SteveJH - we could have paid for our new Terri up front but instead financed about 2/3 and left the money in our mortgage as the interest rate for the car was much lower than the mortgage.

[PridenJoy]

gtfpv, your calcs are all fair enough except that for a 48 month lease the residual would be lower than 36 month lease, so the total cost in the end would be even less than what you calculated on the novated option. Moot point though considering the changes in FBT rates.

[jpd80]

Originally Posted by SteveJH

I borrowed most of the money for my Focus, could have paid the majority up front, but the interest payments on the money in my bank account should be more then the interest on the loan, even with tax.

Plus no matter how much you borrow, you still have to pay the $750 origination fee and assorted other fee's, so the more borrowed, the lower the effective interest rate.

I can see what you're saying but being mindful that financing say, $45,000 gets tricky because the repayments
over 48 months is around $900/mth without any interest and that can test the resources of some people already
committed to heavy repayments but if you have the $45,000 saved up then that monthly load is not apparent
but I can see that 2.9% finance on a Focus is an excellent way to attract people into an new fuel efficient vehicle..

I fall into the latter type that likes to save up and pay cash and negotiate a great deal without trade.
It all depends on your circumstances...