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

[wai]

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

The comparison rate is established against a standardised loan. It is only for comparison and not an absolute statement of the rate.

The thing is that it does not matter either way. When you sign the loan document, just make a note of the actual interest rate you will be paying.

[Dutch77]

I think there is a little confusion over what a comparison rate is here - partly due to the wrong definition quoted earlier.

It has nothing to do with standardised loans and terms - it relates to that loan only, and simply groups in all fixed charges as monthly and annual fees etc. all skew the actual interest rate.

A more accurate description is:

The Comparison Rate is an indicative interest rate that is designed to help members identify the 'true cost' of a loan. The Comparison Rate takes into account the interest rate and "ascertainable fees and charges" that relate to the loan, in an attempt to express some of the costs of a loan into a single (comparison) rate.

"Ascertainable fees and charges" are those that are definitely payable during the life of the loan - such as application fees, monthly or annual charges, cost of valuation and legal fees.

What isn't included?
The Comparison Rate does not include fees and charges that may occur or are based on some future "event" - such as redraw, early termination fees, progress payments or fees charged by some institutions when you decide to switch lenders. In addition, government and statutory charges are not included - as these are standard irrespective of the type of loan or who the lender is.

[brad]

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.

Show me where you get this idea that it is compared to a standardised loan of $150k over 25 years. I've looked at a heap of definitions of comparison rate & none say this.

Perhaps you should go & check before putting your cok on the blok

[tigger73]

Well Dutch is the accountant so he should know.

At the end of the day VW has only so much margin in their cars. They can either offer low interest rates, additional "no cost" features, cash back, corporate discount, dealer incentives, etc. However they promote their cars to get you to hand over your (or your banks) cash is a bit of a lottery really.

Some offers work better for some people than others. Low interest rates are probably better for personal customers who aren't using for business use but maybe Dutch is better qualified to comment on this (general advice only ).


Sent from my iPhone using Tapatalk

[Polo GTEye N9]

I think there is a little confusion over what a comparison rate is here - partly due to the wrong definition quoted earlier.

It has nothing to do with standardised loans and terms - it relates to that loan only, and simply groups in all fixed charges as monthly and annual fees etc. all skew the actual interest rate.

A more accurate description is:

This is a good reflection of Comparison Rate means....

A more accurate description is:

The Comparison Rate is an indicative interest rate that is designed to help members identify the 'true cost' of a loan. The Comparison Rate takes into account the interest rate and "ascertainable fees and charges" that relate to the loan, in an attempt to express some of the costs of a loan into a single (comparison) rate.

"Ascertainable fees and charges" are those that are definitely payable during the life of the loan - such as application fees, monthly or annual charges, cost of valuation and legal fees.

What isn't included?
The Comparison Rate does not include fees and charges that may occur or are based on some future "event" - such as redraw, early termination fees, progress payments or fees charged by some institutions when you decide to switch lenders. In addition, government and statutory charges are not included - as these are standard irrespective of the type of loan or who the lender is.

[Sunny43.5]

Okay after all these explanation's I am still non the wiser , probably because every time we have purchased a new car we just go to the bank and arrange a loan or if we have the $$ pay cash . At least with the bank its spelt out in simple plain English , my understanding of the word "comparison is to use it to "judge one against the other . Sorry I am just an old fart living in a world where I seem to be being left behind . Still"" Dazed and Confused ".

[tigger73]

I think the answer is if you're a bad negotiator and you want the best price on a car then you're better off waiting until there is a "deal" being offered by the manufacturer. At least that way you're buying at a discounted price which you haven't had to haggle to get.

Reality is the 0-2.9% finance offers you see bandied about usually have some strings attached - like based on full RRP, excludes fleet and corporate buyers, etc. Essentially it's a discount on the finance to secure your business but of course we all know there's "no free lunch". The discount on the finance is made up for by the fact you're paying full RRP on the vehicle.

To work out if it's a good offer or not you have to crunch the numbers.

Say for example you're looking to buy a $30,000 car and you could get finance from your bank for 8% over 5 years. The total amount payable over the life of the loan works out to be $36,498.

If instead you were to buy the same car but with a 3% finance offer (saving of 5% on the interest rate) you'd only be paying $32,344 over the life of the loan. Which is a nice saving of over $4k.

The real question is what would you have to squeeze the purchase price down to get the same effective cost for the car without the finance offer? The answer to that one is you'd have to buy the same car for $26,586 at the 8% finance to be even (i.e. total repayment including interest of $32,344).

There's a bunch of online finance calculators that will tell you what the repayments and total cost is for the various options you're considering. At the end of the day it depends on how sharp your negotiating skills you have and/or what finance deals you have available to you whether it works out better for you or not.... plus tax considerations however that's another whole rabbit warren in itself.

So crunch the numbers plus look at the terms and conditions on the finance to see if it's a good or bad deal for your circumstances. Sometimes there are "hidden" costs for early termination/additional repayments, etc so you always have to see if it's going to work for you or not.

[Dutch77]

So crunch the numbers plus look at the terms and conditions on the finance to see if it's a good or bad deal for your circumstances. Sometimes there are "hidden" costs for early termination/additional repayments, etc so you always have to see if it's going to work for you or not.

That's a good one to remember for anyone taking out car finance - unless you're doing it via a variable bank loan the interest rate under these finance contracts is usually fixed and therefore will almost certainly be subject to termination fees.

If it's in the banks favour you'll probably just get stung a straight fee, but if it's in your favour (ie paying out a higher interest loan when rates have dropped) then you can face much larger break fees. As one component of the calculation is the value of the loans, car finance isn't too bad in this regard; I've seen break fees run into the hundreds of thousands on early termination of fixed commercial loans.

[tigger73]

I've seen break fees run into the hundreds of thousands on early termination of fixed commercial loans.

Ouch! Some of those finance guys can be real sharks!