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Why a zero per cent interest rate could cost you more for a new car

A NEW car bought with a zero per cent interest rate can be dearer than the exact same vehicle purchased at a discounted price with a regular finance rate, a study by News Corp Australia has found.

Last month the Nissan Pulsar was available with 0 per cent finance but the deal was linked to a $24,990 drive away price.

The same car was previously available for $19,990 drive-away. With a regular interest rate of 8 per cent, the total repayments are in fact lower than the 0 per cent deal.

According to figures calculated using the website, a car loan for $19,990 paid back at 8 per cent interest over three years amounts to repayments of $624 per month and a total cost of $22,449, not including any establishment fees or extra charges.

But $24,990 paid back at 0 per cent interest over three years amounts to repayments of $694 per month, an extra $2541 over the life of the loan, according to the online calculator.

Finance experts say car buyers should always find out the total repayment figure on low interest rate offers, and then compare that with an outside finance offer on the price of a discounted car.

“Many car companies use low finance offers to get customers into showrooms, but in most cases the deals are tied to the full price of the car and full dealer delivery charges,” said a veteran car dealership finance expert speaking on condition of anonymity.

“That’s the only way car companies can afford to offer the low interest rates. They get their money eventually. You don’t get nothing for nothing.”

Adding to the confusion for car buyers, some low interest rate deals are better than others.

When the low interest rate is combined with a low drive-away price, the customer is well in front, savings thousands on the repayments of a new car over the life of the loan.

For example, this month Ford has a low drive-away price on three slow-selling vehicles in its SUV range combined with a low 1.9 per cent finance offer.

The Ford Kuga mid-size SUV, for example, has been discounted to $29,990 drive-away in recent months, about $3500 off its full price.

But the company is now also offering a 1.9 per cent interest rate over three years to sweeten the deal, a saving of about $3000 over the life of the loan at 8 per cent interest.

Last year the Toyota Camry was also available with a “double whammy” deal, combining a 1 per cent interest rate with a discounted drive-away price of $28,990, at the time about $7000 off full price.

Interest rate offers are likely to become the new battleground in car dealerships.

The car industry is expected to use finance offers to mask price rises in the coming months if the Aussie dollar continues to fall.

“The finance rate offer is a way to say to customers ‘this is how much the repayments are’ rather than having them focus on the actual price, especially if it goes up,” the dealer representative said.

How to drive a bargain

1) Ask how much the total repayments are over the life of the loan, regardless of the interest rate.

2) Always compare the low interest rate offer with what’s available outside the dealership. Sometimes dealers can be better than then banks and other outside lenders, and vice versa.

3) Ask if the low finance rate is attached to the price of the car, or is the price of the car negotiable as well.

4) Many low interest rate offers are only available over three years, and the monthly repayments may be higher than a regular interest rate over a longer term loan.

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