Would you buy a new VW if they offered you 0.0% to 2.9% Finance Comparison Rate?

[Polo GTEye N9]

Ford is offering 2.9% (includes all fees & charges) until 31 August, on certain models, 10% deposit over 4 years ie on a new car $31,390 drive away, $3,139 Deposit with $630.35 per month over 4 years.

Ford Australia - National Latest New Car Offers: Latest new car deals from Ford.

Sounds too good to be true! Read on Zero Percent Interest? Sounds Too Good To Be True. | Private Fleet Automotive Blog

VW has offered 0.0% and on occasions 2.8% on their cars recently but not currently.

Anyone keen to encourage VW to offer these deals again?

Cheers Al

[wai]

0.0% does not mean 0.0%. It is what is called a "comparison rate", and is anything but 0.0%.

[Sunny43.5]

I am an old school guy when we bought car s back in our time you had a cash price inclusive of everything , then if you wanted finance they would say you can buy the car at set rate of interest over a fixed time and that was it . So no sashaying around or complex goobly gook like it seems is the norm today , I get incensed every time I see these ads on TV makes no sense to me .

[brad]

Somewhere along the line you are going to pay for it.

Here's the test:
Most of the VW & Skoda range can be had for between 5%-12% off RRP at dealers that want to sell cars. Work out what you are willing to pay. Lets say it's 8% off as most of us can get that if we haven't got a trade-in (if you do have a trade then the discount will probably go onto an inflated trade-in price so that you don't realise what a money pit a car is).

Do all your negotiations based on cash - ie: You've saved up & the money is in the bank ready to go.

At the end of the negotiations when you've achieved the targetted cash price, tell them that you've noticed the 0% deal & would like to do that instead. Suddenly all bets will be off & you'll have to start negotiating again - I can almost guarantee it.

[gareth_oau]

I once went into one of these electrical Harvey Norman type dealers, and negotiated heavily for a tv, and asked for their very best price for cash.

Once I had the price down and was happy (lets say $2000), I then said, ok I want that on 0% interest terms.

he then told me the price would be $2300.

so I said thats not interest free, its $300 of interest and he wouldnt agree with me, nor let me have the interest free price of $2000.

I blieve that Consumes Affairs has now clamped down on this practice

[Dutch77]

In the fine print I can almost guarantee it will specify the deal is based on current stock and only at RRP.

Therefore these deals only hold any value if you have no idea how to negotiate a direct discount, or intend to finance most/all of the vehicle and cannot negotiate a decent percentage rate on a car loan.

[wai]

Here's what they mean by "comparison rate".

"The comparison rate is an indicative interest rate that combines the nominal interest rate with any foreseeable fees and charges associated with the loan, to help you obtain a more comprehensive picture of what your car loan is going to cost you over the life of the loan."

It was dreamt up by the ones who gave you the "basis point". It turns out that economists cannot understand decimals, so 1% is 100 basis points.

The comparison rate is like airlines who offer you sub $100 air fares, only when you buy a ticket you find there are a whole lot of additional charges.

Still, it sounds great when you hear of dealers offering you 0% interest (comparison rate of course). After you sign the deal, you find it is anything but 0% interest.

[brad]

Wai,
I think you'll find the comparison rate is the rate that gives the full story, whereas the 0% is based on the bare interest rate. eg: add all the charges & suddenly the 0% becomes 6% - maybe I'm wrong though.

Generally, for these very low interest loans, if you stick to the T&Cs they might be a good deal and it's when you breach the conditions they become usurous.

Of course, this doesn't take into account that they don't allow you to negotiate a better purchase price.

[Polo GTEye N9]

Wai,
I think you'll find the comparison rate is the rate that gives the full story, whereas the 0% is based on the bare interest rate. eg: add all the charges & suddenly the 0% becomes 6% - maybe I'm wrong though.

Generally, for these very low interest loans, if you stick to the T&Cs they might be a good deal and it's when you breach the conditions they become usurous.

Of course, this doesn't take into account that they don't allow you to negotiate a better purchase price.

The Comparison Rate is the interest rate agreed upon be it 1% or whatever, while including all fees and charges for the term of the loan. For some buyers who never think of asking or haggling for a better price The Comparison Rate is possibly the best way to buy.

I always consider making a good offer to a seller if at all possible and see if they are willing to negotiate. A fair price for the effort and product should always be given though.

Good posts so far and that is why I started this The Comparison Rate topic in the first instance. Keep on replying folks.
Cheers Al

[wai]

Here's some more information which shows how absurd it is for purchasing a car or anything other than a mortgage.

How is the Comparison Rate Calculated?

The comparison rate is calculated based on the following numbers, no matter what your loan size is:

$150,000 loan amount
25 year term
principal and interest loan


No wonder you can come up with an effective 0% comparison rate on a car that is worth way less than $150,000, and is paid off way short of 25 years.

When negotiating a loan, insist on being told the actual rate of interest you will be charged, and consign the "comparison rate" to the garbage; which is where it should be.

[Sunny43.5]

After reading all these posts I am still non the wiser on the term Comparison Rate , sorry it making no sense to me whatsoever . Why is the word comparison used even . When you take out any loan car house whatever I was under the impression that lets say if you are wanting a loan of $100000 and the interest rate over the whole term is 10 % per annum then you will repay the full amount plus the 10% for each year calculated on the balance after each year . Have I got it right " Dazed and Confused "

[wai]

The comparison rate is a nonsense. It is supposed to allow you to compare the deals from different loan providers, but the reality is that it simply adds more confusion.

The comparison rate is ALWAYS lower than the actual rate that is charged. Now if loan providers were to advertise the actual rate they will charge AND a comparison rate, those looking at the loans would be able to work out which loan had higher fixed charges. As it is done now, it is a meaningless number to quote, as it can only be used to COMPARE it against a loan for the same item from a different loan provider.

What you say is right. If you have a loan for $100,000 at 10% interest per year, then with simple interest, for each year you have the loan, you would pay $10,000 in interest. If you took a loan that had 0% per year comparison rate, then you are certainly NOT going to be paying $0 in interest.

So, anyone looking for a loan, ask what the ACTUAL interest rate will be, and what other charges (like loan establishment fee, service fee, etc) will be. If you are going to buy a car, you can understand the basic figures and do to the "throw away" comparison rate just that. Throw it away and never refer to it again. It is the only way that things will change.

The comparison rate is like the published fuel consumption figures for cars. You use them to compare, but never expect to achieve them on a regular basis. Yes, you might get close, but highly unlikely to do so.

Forget the comparison rate, and ask for the real rate.

[brad]

I disagree with Wai.

I've just looked at my banks website & the comparison rate is consistently higher - which is what I'd expect.
Looking at infochoice on the RHS - same deal comparison is higher than the actual rate.

WAI - show me where your explanation is the case please?

[Eaglehawk]

I also disagree with Wai. My interpretation of comparison rate is this:

It's the "effective" rate you pay, taking into account all the yearly/monthly fees/charges associated with the loan. So, because NAB charge me $395/year, my "10%" interest rate isn't really going to be 10%, it's going to be whatever I pay, plus an extra $395/year.

Comparison rates were forced into the finance advertisements to allow consumers to compare "apples with apples". Much like they are trying to do the same for mobile phone plans. It's not perfect, but it gives you an idea on the extra charges when you switch to that product.

If I'm wrong, please correct me

[wai]

I disagree with Wai.

I've just looked at my banks website & the comparison rate is consistently higher - which is what I'd expect.
Looking at infochoice on the RHS - same deal comparison is higher than the actual rate.

WAI - show me where your explanation is the case please?

So you are saying that you can go to a dealer that is offering a 0% comparison and you will be paying 0% interest? After all, after taking in all the fixed fees and charges, you are not going to be paying back just the principal. If the comparison rate is supposed to take into account all the fixed fees and charges, then with a 0% comparison rate, you would still only be paying back the principal. I don't think so.

The comparison rate is supposed to compare your loan, fees and charges over something like a 4 year term against the standardised loan of $150,000 over 25 years. So, of course you will get better comparison rates for small loans and worse comparison rates for home loans or loans that are significantly greater than the standardised loan.