How 3.90% Finance Cost $2,622.12 More Than 8.10%

Written on the 1 February 2013 by G. Dean McKinnon

There is a lot of marketing by car manufacturers and motor dealers at present about their 'special low' Interest Rates. Unfortunately, as with most things that sound too good to be true, it usually is.

One of my clients recently purchased a vehicle from a car manufacturer and was told their own Finance Company could arrange Finance for the purchase at a 'special low' Interest Rate of 3.90%. At the time, the client's Financier offered an Interest Rate of 8.10%. The client has a Total Service Agreement with me, so they asked me to evaluate the offers for them.

I was easily able to obtain a Vehicle Purchase Quote from a local motor dealer (over the phone) for the exact same vehicle the client was proposing to purchase, with all of the same Optional Extras. I then obtained a Finance Quote from the client's Financier, to ensure the comparison was accurate.

Following is a summary of my calculations:

Details Special Rate Standard Rate
Vehcile Purchase Price $25,500.00 $23,490.00
Dealer Origination Fee $650.00 Nil
GAP Insurance $1,090.00 Nil
Establishment Fee $355.00 Nil
Security Registration Fee $9.00 $12.00
Agreement Registration Fee $144.00 Nil
Interest Charges $2,224.96 $4,088.88
Account Administration Fee $240.00 Nil
Interest Rate 3.90% 8.10%
Total Cost Over 4 Years $30,213.00 $27,590.88
Additional Cost $2,622.12  











As is evident in the Table above, it is not the Interest Rate which you need to be concerned about, it is all of the potential 'extras' that can end up costing you a lot more than you think.

So, if you are considering buying a vehicle and you need to arrange Finance for the purchase, make sure you double-check all of the Fees and Costs before you proceed. Or, if you are one of my Total Service Clients, I will check it for you!

Author:G. Dean McKinnon
McKinnon Financial Planning Pty Ltd ABN 74 155 233 784 Australian Financial Services Licence 417488 | McKinnon Financial Services Pty Ltd ABN 82 056 817 648 Australian Credit Licence 392173 | General Advice Warning: Information contained in the pages of this website is of a general nature only and has not taken into account your particular circumstances. You should consider whether any strategies and or investments mentioned in this website are suitable for you and seek personal advice from a licenced investment adviser before making any investment decision.
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