Why Do Car Dealerships Only Offer Fixed-Rate Loans?

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Why Do Car Dealerships Only Offer Fixed-Rate Loans?

Car dealerships are notorious for having all sorts of tricks up their sleeve, which are designed to achieve one thing and one thing only: extract more money out of you, the buyer.

It should be said that not all car dealerships use these sneaky tricks and there are plenty that are upfront and honest.

But to counter these tricks, you have to understand them. And many of them revolve around, not just the price of the car, but the rate of the car loan.

Here, we’ll discuss why some car dealerships only offer fixed-rate loans, brought to you by the expert brokers at Carbroker.com.au who have almost 20 years of experience in the field.

The ‘cheap finance’ trick

One of the favourite tricks that dealers employ is the good, ol’ ‘cheap finance’ shtick. A dealer may tell you they’ve reached the “limit” of what they can do with the price, but that they can do you a “special deal” on finance.

They’ll say the normal rate is, for example, 5.99% and then say: “…but you can have it for 4.59%”. Unless you’re aware of current interest rates, you can easily pay too high a rate and, sadly, many Australians fall for this one. The best interest rate may in fact be, for example, 3.59%.

The ‘zero fixed-rate interest’ trick

Zero interest, fixed-rate. Sounds too good to be true, right? Well, that’s because it is. 0% interest sounds fantastic upfront but, rest assured, car dealers always make up for it.

Let’s say you’re looking at a car with a $25,000 price tag, and you’re offered 0% finance. The term of the ‘loan’ is 36 months.

Now, why would the dealer give you a 0% interest rate, when they’re usually between 3.5-5%, give or take? That’s because the dealer has actually bumped up the price on the vehicle to $25,000, when their absolute best price is actually $20,000.

So, let’s say you get the car for $20,000 with a 3.5% loan over the course of the 3 years. You’ll only end up paying an additional $2,100, rather than an extra $5,000 on top of the price of the car. Never be fooled by 0% interest rates.

Why is the dealer only offering a fixed rate?

Typically, if a dealer is only offering a fixed rate on your car loan, it’s to suit them. Because interest rates have gone up, the dealer might be hoping to lock you in at a higher interest rate, safeguarding themselves against the event that interest rates go down significantly within the next year.

Don’t panic if the dealers are pulling confusing tricks on you – just contact the folks at Carbroker.com.au. Carbroker’s finance team can score you a great loan on both new and used cars. Their financial experts use a large database of financiers to drive down your interest rate and get you the best car loan for your personal needs. Don’t hesitate to call the team at Carbroker.com.au and earn massive savings on your next car loan.