0% Finance Car Finance

Zero Percent Car Finance and Low Rate Finance deals are being offered by an ever increasing number of car dealers – Is it really as good as it sounds?

There’s nothing like the smell of a new car! In fact, figures show Australians bought a record number of new cars in 2015, eclipsing 1.1 million sales for the fourth year running.

 

There are a number of ways to finance a car. In recent years we’ve frequently seen zero percent finance or low percent car finance advertised. Many people find this an enticing way to purchase their next new motor vehicle.

But have you heard the old saying ‘you don’t get anything for FREE’? Well the reality is – you don’t! So who is really paying for you to have an interest free car loan? You guessed it … YOU ARE!

How is the interest hidden?

In today’s new car market Zero Percent Car Finance or Low Rate Finance deals are being offered by car dealers to suck you in. Before you rush out and sign on the dotted line, it’s important to understand what is happening behind the scenes with these low rate finance packages.

Firstly, there is no doubt the interest rate being advertised to finance the vehicle purchase is legitimate. But, the question is – How are they able to offer this rate? These Zero Percent Car Finance offers are typically part of what the industry calls a ‘subvention‘ finance program as the interest rate for the finance package is being subsidised by the car dealer or manufacturer out of the profit made on the sale of the car.

 

How does Zero Percent Car Finance work?

Let’s look at a simple example to illustrate how subvention works.

Assume you purchase a new $35,000 car which is being sold in conjunction with subvention finance at an interest rate of 1 .9%. The loan term is 48 months with a nil residual at the end of the contract. (normally you are not able to change these terms)

Depending on the lender who is providing the finance, the ‘subvented’ amount could be between $2,500 and $2,900. and so, once the transaction has been finalised, the car dealer or manufacturer must ‘pay’ or reimburse the subvented amount to the lender so they still make enough profit on the finance contract – the finance company and car dealer don’t want to be out of pocket just to sell you a car….

Ever noticed a car dealer is unlikely

to discount the price of a car being

sold under zero percent car finance or low interest finance?’

It is now clear the dealer needs to make a larger margin on the car to be able to pay the subvented amount to the lender and still maintain their normal margin.

What does this mean for you?

it means you will potentially be paying a premium on the price of the car just to secure a low rate on the finance

Chances are you could be out of pocket – there for you need to negotiate on the price of the car first excluding any Zero Percent Car Finance offer and you will inevitably get a far better price on the car. if you need car finance as about that second.

  • Hers a Tip – Negotiate towards the end of a month and you are likely to get a cheaper price as the salesperson will be keen to get his sales target to get his bonus.

Remember: The higher the purchase price of the car, the more you will pay for items such as GST, stamp duty and luxury car tax (if applicable).

 

What are my other options?

A more prudent approach is to negotiate on the basis of a cash sale with the car dealer leaving the low interest rate finance offer out of the equation. It is not unrealistic to obtain a discount of 8% to 10% off the asking price if the sale is not subject to a subvented finance arrangement.

We often find once a discounted purchase price has been negotiated, those clients who then arrange finance through us at ‘normal’ market rates typically end up paying lower monthly repayments (thus lower total repayments) over the term of the finance contract than they would through obtaining subvention finance.

Why not just pay cash?

Well you could but you certainly won’t get any return on your investment. Could you perhaps better invest your cash elsewhere?

At the end of the day the old saying ‘there is no such thing as a free lunch’ certainly applies when it comes to zero or low rate car finance deals.

Tips to save you money:

  1. Negotiate on the price of the car first
  2. Consider using a car buying service – we can give you a recommendation
  3. Then agree to get a finance quote
  4. GET A SECOND OPINION every time – Contact Noble today for a Quote

I hope you find this helpful

Cheers

David Johnson

(View my profile here)

You don’t need to sacrifice your Lifestyle to Invest

Many people don’t invest in assets because they don’t want to sacrifice their current lifestyle.

Given the choice between

(a) lying on a white sandy beach in Thailand after a long lunch of fresh seafood or

(b) not going on holiday and putting all spare cash into investment

Most people would rather go on holiday.

 

I believe you can have both. And to do so you don’t have to sacrifice your current lifestyle. I believe you can develop a strategy where you can have more lifestyle now more wealth later on.

 

“The secret is in understanding the numbers and changing your mindset.”

 

To work with your number and develop a strategy contact to me

 

Ariful Islam

0401 967 525

ariful@noblefinancialservices.com.au

Refinancing Your Home Loan Can Help To Pay Child Care & School Fees.

 

refinance-your-home-loan

If you have children at pre-school or school then you’ll know the strain that Child Care & School fees can put on your budget. Consider Refinancing your loan as it could save you a lot of money.

Just suppose you could find a way that puts a few extra dollars in your pocket every month without having to work extra hours or cut back on your lifestyle, would that be of interest?

If you have a home or investment loan the good news is, it could be possible.

How?

Refinancing.

In simple terms, refinancing is a term used to describe paying off or replacing your current loan with a new loan from a new lender.

The idea being that the new lender offers you a lower interest rate and/or fees, which reduces your regular loan repayments.

At the moment (December 2016) most lenders have owner occupied home loan interests rates currently under 4% and to demonstrate the potential savings I’ll use an example of a lender who has an interest rate for an owner occupied loan of 3.79%

Lets assume that you currently have a home loan of $300,000 and your interest rate is 4.35%. Your monthly Principal & Interest repayment would be $1,493.

By refinancing to the lender offering 3.79% your monthly repayments reduce to $1,396 per month a saving of $97 per month or $1,164 per year.

How would this extra money help with your Child Care or School Fees? and think the average home loan in Sydney is much bigger than $300,000.

 

Another way to reduce your monthly repayment is to change the loan repayment type.

There are 2 basic types of loan repayment – Principal & Interest Repayments or Interest Only Repayments.

Principal & Interest repayments means that you pay the interest on the loan each month plus an extra amount that will repay your loan off over a certain time period (for example, 30 years).

A Principal & Interest repayment reduces the loan amount each month.

With Interest Only repayments all that you need to pay is the interest on the loan balance. There’s no need to pay the extra principal repayments but it also means that the loan amount stays the same.

What this means though is that the principal part of the repayment can now be used for other things, like school fees, uniforms, books, excursions etc etc.

For example, lets assume that you have a home loan of $300,000 and your interest rate is 4.35%. Your monthly Principal & Interest repayment would be $1,493.

If you changed to interest only repayments the monthly repayment would reduce to $1,088 or a saving $405 per month or a massive $4,860 per year.

 

Imagine if you did both –  reduced your interest rate and switched to interest only repayments.

Using the example above if you refinanced the $300,000 loan to the lender offering 3.79%, the monthly interest only repayment would be $948

Wow a saving of $545 per month or an incredible $6,540 per year.

 

N.B. Some lenders may not offer an interest only option on owner occupied home loans and lender qualification criteria also applies.

In order to decide whether it’s worthwhile refinancing, the savings in interest must be weighed up against any fees associated with leaving the current lender and any new fees the new lender may have.

You should get professional advice before refinancing or changing the repayment type and this is where an expert in home and investment loans can help you.

An expert in home and investment loans will provide you with all of the facts to consider your options and will give you the confidence in making your decision.

If you’d like to find out what’s possible for you please call Danny (a home and investment loan expert) anytime on 0408 648 107 or email danny@noblefinancialservices.com.au

 

MORTGAGE OFFSET ACCOUNTS: MAKING YOUR LOAN WORK FOR YOU

Savvy borrowers have an endgame in sight before they even apply for a home loan, and with the right mortgage offset account, they could win that game even more quickly.

Home buyers usually focus on the here and now, not the distant future. Rather than the size of their loan balance in 10 or 20 years, they are more likely to think about how much they can borrow and the kind of house they can afford.

But smart borrowers know the future matters. The years roll around and it’s always better to pay off a mortgage before its term and pay less interest to the bank.

The good news is that if a mortgage offset account is right for a borrower, it can help them do just that. An offset account can make them a match for their mortgage.

What is a mortgage offset account?

A mortgage account with 100 per cent offset is a fully featured transaction account that sits alongside a home loan. In many ways it acts just like a regular bank account.

However, along with the usual facilities, like ATM access and direct debit, there’s another significant advantage: Any money sitting in the offset account reduces the amount that the bank calculates interest payments against.

That’s right. The loan principal is reduced for the purposes of interest calculation by the amount of money in the offset account, without increasing the repayment amount.

How does an offset account work?

An example may make it easier to understand how an offset account works. If a home buyer has a principal of $350,000 outstanding on their mortgage and also has $10,000 in a linked 100 per cent offset account, the bank will only charge them interest on $340,000.

The money they save in interest goes straight into paying down their loan principal, which has the effect of reducing the interest paid over the life of the loan, as well as the overall loan term. Less money paid off faster.

When borrowers realise that banks calculate interest on mortgages daily, offset accounts can be used proactively. For example, getting salary paid into an offset account means the loan principal is in effect reduced by that amount as soon as it is paid.

Savvy borrowers may even choose to use interest-free days on their credit cards to pay for goods and services, so they can keep cash in their offset accounts working for them.

How can my mortgage broker help?

Mortgage brokers help borrowers apply for and secure appropriate home loans every day, and many will have an accompanying offset account. They will usually compare a range of competitive products, and look at loan features like offset accounts so borrowers can make informed decisions.

Anyone with a mortgage can choose to have a linked offset account, although it will depend on the loan type and institution. It’s always best to check the offset is 100 per cent.

It’s important to know that offset accounts are usually included as part of fully featured home loans, which might mean you pay more in fees or a higher interest rate. So discussing your financial circumstances with a broker could be a smart first step.

Game, offset, match

Borrowers who are serious about winning the mortgage game need to be aware that having a mortgage offset account could offer them an edge in the long term.

In any sport, a match isn’t won instantly. Points are accumulated over time. With the points scored daily by an offset account, it can be game, offset and match.

For more information on home loans, make an appointment with one of our team today.

HOME LOANS 101

A man and woman sitting on a bench.

There are a range of home loans available in Australia, so it can be hard to understand their features and whether they are right for you. This guide explains all you need to know.

Variable loans

Variable loans are loans that are subject to interest rate fluctuations. Whenever your bank increases or decreases interest rates, you will end up either paying more or less for your loan, depending on what the bank has decided to do.

A typical owner-occupied mortgage is taken out over 25 or 30 years, although you can reduce the overall term by making higher or more frequent payments. Mortgages are either based on principal (the amount you borrowed from the bank) and interest (the amount you pay back for having borrowed that money) loan repayments, or interest-only repayments (generally available for 1-5 years for owner occupied loans and 1-10 years for investment loans) where none of the principal component of the loan is paid down.

 Fixed-rate loans

Fixed loans allow you to lock in a specific interest rate over a set period of time, generally between one and five years. This loan is popular among borrowers who want to ensure their repayments don’t rise. The main risk is that if variable rates fall, you are locked in at a higher rate. The cost of breaking a fixed rate loan contract can be substantial, and there can be financial penalties for making additional payments.

 Split-rate loans

You can take out a mortgage with one portion of the loan variable, and the other fixed. In many ways, this offers the best of both worlds and you have the flexibility to repay more on the variable loan and reduce risk through the fixed loan.

Low-doc loans

Mortgage lenders require you to provide evidence of your ability to meet loan repayments, but this can be a problem for non-salaried workers such as the self-employed. Low-doc loans require less proof-of-income paperwork, but the interest rate levied is often higher than the standard variable rate.

 

 Professional or packaged loans

Some lenders offer mortgages that provide ‘lifetime’ discounted interest rates, fee waivers and linked savings accounts and credit cards. These options are generally offered on high loan amounts.

Non-genuine savings loans

Lenders prefer borrowers to show they have the ability to save funds over time to cover their repayments. If a deposit is accrued quickly due to an inheritance or from other sources, lenders may provide less funding and require lenders mortgage insurance. Lenders mortgage insurance is a one-off insurance payment that covers the bank in case you can’t make your repayments. It is usually required for home loans with a loan-to-value ratio (LVR) over 80%.

Construction loans

These loans allow amounts of finance to be drawn down progressively to cover the various stages of a construction project. Repayments (generally only on interest for the first 12 months, then principal and interest thereafter) are only made on the amount of the loan facility that has been drawn down. However, there are line fees on the undrawn amount, or in most cases on the total facility limit.

Line-of-credit facilities

This is a way of tapping into equity in an existing home and drawing down funds as required for different purposes, such as renovations. Similar to a credit card, repayments are only made on the amount drawn down. Line-of-credit loans are often interest-only for a significant period, but can revert to principal and interest repayments down the track. Most lenders charge extra for line of credit accounts, either through a facility fee, undrawn funds fees and/or a higher interest rate.

Bridging loans

Bridging loans are designed as short-term financing options for borrowers who need funding to buy a new residence before selling their existing home. The interest rates on these loans are higher than the standard variable interest rate.

SMSF loans

The rules around borrowing funds within a self-managed superannuation fund are complex. Borrowings with a SMSF must be undertaken through a limited recourse borrowing arrangement, which limits the recourse of the lender to a single asset.

With mortgage lenders offering so many different products, getting professional advice is a must. A mortgage broker will support you with recommendations about what’s best for your personal circumstances.

For more information on home loans, make an appointment with one of our team today.