Bank lending almost always hits dealership financing
The upturn in the car market and the early spring prompt more and more banks to significant interest rate cuts on car loans. In recent weeks, several major institutions have significantly reduced their effective interest rates. More than ever, therefore, car buyers should consider optically favorable retailer financing only in the back mirror.
Interest rate cuts of up to 0.40 per cent on loans that cost less than 5.00 per cent interest before are rare and can not be explained by an acute development in the interest rate market. Banks are competing with retailers and manufacturers to handle the financing: merchants lure buyers with loans starting at 0.00 percent yet bank loans are almost always cheaper.
Dealer financing reduces negotiation room
The reason: If a car buyer takes advantage of the installment, the dealer refuses him a portion of the possible discounts. The sales professionals calculate as follows: Is a price reduction in the sales discussion to a prospective customer around z. If, for example, 2,000 usd are denied, the interested party rejects with a probability of XY percent, because the price exceeds its willingness to pay.
However, when negotiated by installment, respondents react less sensitively to changes in the (payable in installments) price: the probability of cancellation due to 30-50 euro rate difference per month is significantly less than a cancellation because of a larger one-off amount.
Comparative calculation: Bank loans are cheaper
If you do not believe it, you can put the test to the test and first negotiate with a dealer about the purchase price and then ask a friend to pose as a cash payer. Provided there is a negotiation skill available in both cases, it is then known how high the discount available exclusively to cash-in-kind pays. Then it is to calculate.
A current case study: A dealer makes it possible to finance a vehicle worth 25,000 usd without a down payment in 36 monthly installments at an effective interest rate of 0.00 percent. The monthly rate is therefore 694.45 usd (rounded up). The key question: what loan amount can be financed with this monthly rate in 36 months?
Already 6-7 percent discount is enough
With an effective rate of interest of 4.36 percent, which is also currently available for loans with non-cash interest rates, a net loan amounting to 23,410 usd can be financed with the monthly installment. Conversely, this means that from an additional cash discount of 1590 usd or 6.4 percent of the bank loan is the cheaper option.
Retailers and manufacturers often rely on complete packages of financing, insurance and service when calculating their offers. Many shoppers keep the favorable offers. The practice looks different: As reported by the Stiftung Warentest in its latest issue of “AskMeFinance”, the insurance policies of the packages in particular are too expensive. For a 35-year-old model customer and a BMW 1, the consumer protectors calculated an annual price difference of 679 usd for liability and comprehensive insurance against contracts on the “free” insurance market.