Australians need to be alert when signing up for car finance deals that benefit salesmen more than buyers, experts have warned.
Consumer advocates are concerned buyers are being exposed to high-pressure sales tactics by dealership finance companies that are offering a one-stop shop for vehicles – and debt.
After luxury car manufacturer BMW was ordered to repay customers $77 million last week for violating responsible lending provisions, the question is being asked: is this an industry-wide problem?
Jonathan Brown, a spokesman for the Consumer Action Law Centre, said there was a serious problem with the sales tactics used in auto finance.
“Cars and how we finance them have been a major problem for Consumer Action for the whole history of our centre,” Mr Brown told The New Daily.
“Over the last 10 years, cars and car loans have been a major source of stress for people who just want a safe car for their family or a reliable way to get to work.”
Mr Brown said too often salespeople in car yards or at finance companies were receiving “ridiculous” commissions to sell products that are bad value, or not suited to consumer needs.
One of the big problems is unnecessary add-ons like expensive insurance options that customers neither want nor need, he said.
“Our Demand A Refund campaign has helped people to seek refunds for dodgy add-on products and has helped people complain about nearly $500,000 in dodgy insurance and warranty products,” Mr Brown said.
“Depending on the product some salespeople make up to 90 per cent commission which is just a gross exploitation of the community. The culture in this industry seriously needs to change.”
Consumer advocacy group Choice is also concerned. Spokesman Tom Godfrey said there were a few things buyers needed to watch out for when considering car merchant lending.
“Car manufacturers are great at dangling deals in front of consumers who are keen to pick up a new set of wheels,” Mr Godfrey told The New Daily.
“But tempting, interest-free offers are unlikely to apply to the duration of the loan and once the interest-free period is up consumers can find themselves liable for large lump-sum payments.
“As we’ve seen from the BMW finance scandal, car manufacturers can be keen to sign you up to loans you may not necessarily be able to afford, so we would urge consumers not to get caught up in the hype around buying a new car and to first work out whether you can afford the repayments as part of the family budget.”
Mr Godfrey said consumers should instead consider secured or unsecured personal loans or even redrawing against their home loans as possibly better options that won’t leave them at risk of being left with a bill for tens of thousands of dollars.
David Blackhall, CEO of the Australian Automotive Dealer Association, told The New Daily he felt it was inappropriate for his organisation to comment.
Mercedes-Benz Financial, Audi Financial Services and Porsche Financial Services did not respond to requests for comment.
Tips for financing a new car purchase:
- Always check the fine print and be aware of hidden costs, commissions or lump sum payments associated with any loan.
- Do your research and get pre-approval for the best offer you can find. Take it to the car dealer and see if they can better it.
- If you redraw against your mortgage make sure you pay the redraw amount off within a few years and don’t simply add it to the balance of your home loan.
- Watch out for any dealer who says “this deal is only available today”. This is a common tactic to try and manipulate consumers into a snap decision.
- Many salespeople will try to wear you down and then rush the final decision-making so you feel you have no choice. If something doesn’t feel right, walk away.
- The first step in protecting yourself is to complain directly to the companies that sold you the car and the loan. If they don’t listen, you can complain to the Financial Ombudsman Service (FOS) or the Credit and Investments Ombudsman (CIO) who will help you resolve the problem for free.