Ask LH: Can I Renegotiate My Car Loan?

Dear Lifehacker, I bought a new car last year, and got financed by the dealer at about 6 per cent, which at the time I thought was good. I noticed they are now having a sale with 1 per cent finance. Is it too early to try and renegotiate my loan? Thanks, Over Charged

Car sale picture from Shutterstock

Dear OC,

Our golden rule for consumers is a simple one: it never hurts to ask. The worst that can happen is that the provider will say no.

Having said that, we suspect very much that the answer will be 'no' in this case. Market conditions were different six months ago, and 6 per cent may well have represented the best available rate for financing at the time. You signed a contract for a loan, and you have to honour that contract at the agreed rate. (That makes for a different situation to buying something outright and then seeing it on sale just a week or two later.)

Yes, the interest rate has changed for more recent purchasers, but that's often what happens. Overall interest rates move frequently, but those which apply to fixed-rate loans don't. The lesson? Before you sign any form of loan contract, you have to be happy that it represents a reasonable deal from your perspective for the length of the contract. It isn't a shiftable entity.

Some other related observations:

  • While you sourced your finance through a car dealer, they're almost certainly acting as an agent for a finance company, and their ability to actually change any of those details is likely to be non-existent as a result.
  • That lack of flexibility means dealers are rarely the cheapest source of finance for a car purchase. Shop around before signing up and see if you can get a better interest rate from a bank or credit union. Ideally, do this before you start shopping for the car; that way, you'll know your budget before you begin and won't be tempted to spend more through high-pressure sales tactics.
  • The small print on the '1% deal' might be quite different to what you're already signed up for; for instance, I wouldn't be surprised if the rate only applies for a limited period, after which it could jump up to a much higher level. Other sneaky details to check for: high loan establishment fees or service charges. It's also possible the 1 per cent arrangement only applies to particular models.

Again: asking won't result in higher repayments, so you may as well try. But don't be disappointed if the result is no change.

Cheers Lifehacker

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    The 1% finance rates are a result of the car manufacturers paying a bonus to the finance company instead of to the dealer. The dealer would traditionally use this money to reduce the price of the car so you generally end up in a situation where the repayments are about the same on a 1% loan as a 7% loan at a reduced purchase price. The other thing to watch out for is that car dealers aren't subject to the same disclosure requirements as banks and finance brokers at the moment so it is very easy for them to manipulate the commissions built into the loan but to still quote base interest rates. I've seen this many times - the best way to shop around car loans is to compare repayments.

      From someone who worked in car finance until very recently;
      A) 6% is a very, very good rate
      B) Under the NCCP Act, Dealers as finance representatives are subject to the same disclosure and reasonable lending requirements as the rest of the finance industry. You will get a Loan Offer from the financier which outlines all the figures so there's no use in a dealer trying to manipulate them.

    Very rare to get a bank or CU to give you less than 6% on a depreciating asset. The trick to a lot of these 1% deals is they're 2012 stock or high volume models

    Sorry to hear that you missed out on a great car financing deal just by a little while! But like what the original answer said - it never hurts to ask! I personally think that it's a good idea to keep your eyes open for more that might come along your way because of changes in the market too.

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