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Australians can save thousands of dollars a year by avoiding this costly financial error

Millions of Australians are losing thousands upon thousands of dollars by getting a personal loan to buy a brand new car.

Even the most popular models typically lose about a third of their value after three years through depreciation alone.

That is also the time it takes to pay off a personal loan.

Instead of buying brand new on finance, Mike Sinclair, the editor-in-chief of carsales.com, suggested motorists consider buying a late-model or demonstrator car. 

‘Most cars these days come with five to six years of warranty. Usually most demo cars with low kilometres are good,’ he told Daily Mail Australia on Friday.

‘Buyers can save thousands of dollars, if they just shop around.’

Australians are losing thousands upon thousands of dollars by getting a personal loan to buy a brand new car (stock)

While interest rates are at a record low in Australia, car loans from a major bank still come with high interest rates, which are significant more than a standard variable home loan.

A Westpac customer borrowing $19,500 for a brand new Mitsubishi Lancer, paying a 9.68 per cent rate, has to eventually pay back $22,157 after three years, or $615.50 a month.

After three years, a Lancer sedan would be typically worth about $14,000, going by the NRMA used car guide.

So not only would they lose $5,500 in depreciation, a borrower would also be paying $2,657 in interest – losing $8,157 or 42 per cent of the purchase price.

That’s before insurance, registration and running costs like petrol are factored in.

A Ford Ranger ute, Australia’s second most popular car, costs $51,640 brand new.

A Westpac customer borrowing $19,500 for a brand new Mitsubishi Lancer, paying a 9.68 per cent rate, has to eventually pay back $22,157 after three years, or $615.50 a month

A Westpac customer borrowing $19,500 for a brand new Mitsubishi Lancer, paying a 9.68 per cent rate, has to eventually pay back $22,157 after three years, or $615.50 a month 

Someone getting a personal loan to buy it would be paying $58,676 after three years, or more than $7,000 in interest.

Rangers typically losing 31 per cent of their values after three years, which means that by the end of the loan period, it would be worth $35,700.

The $15,940 in depreciation plus the $7,000 in interest means a motorist borrowing to buy this ute would have lost almost $23,000 or 45 per cent of the original purchase price.

Product comparison firm Canstar warned borrowers to be wary of paying higher interest rates. 

Instead of buying brand new on finance experts suggested consumers could consider buying a late-model or demonstrator car

Instead of buying brand new on finance experts suggested consumers could consider buying a late-model or demonstrator car

‘They get excited and make decisions, which they otherwise wouldn’t make in terms of cost, interest rates, extras and insurance premiums,’ the group’s financial services executive Steve Mickenbecker told Daily Mail Australia on Thursday.

‘My advice is to keep car negotiations and car financing separately. First do a hard negotiation on the car price and then do the same with loan.’

He said often a zero per cent interest rate or even two to three per cent proved to be more expensive – because all costs are built into the purchase price.

Buyers are also advised to double check the actual build date of the car.

For instance, a brand new car built in 2018 but sold in 2019 will command less in the used car market in three years’ time compared to the 2019 model. 

This is the reason some dealers and manufacturers offer cheaper interest rates during their clearance sales. 

Customers can also look for used cars with low kilometres, but experts say it is better to get it thoroughly checked through NRMA and other independent service providers.

NRMA spokeswoman Rebecca Page advised customers to stick to their budget.

‘Extras like a sunroof might seem nice, but buyers might need to reserve that budget to cover other costs like insurances, dealership delivery or warranties,’ she said. 

‘If you don’t understand something, don’t commit until you show someone who does understand and can explain it to you.’

Read more at DailyMail.co.uk