How much did you pay for your car? No, how much did you really pay, after interest on any finance agreements?
The reality these days is that some car companies are making more profit from providing loans to car buyers than they are from the cars themselves, and customers are the ones paying the price.
You’ll probably know that the Bank of England base rate of interest is at 0.5%, and has been for a long time now. That means that other banks can borrow money at that interest rate – practically nothing. But then when it comes to signing on the dotted line in the showroom, have a look at what you’re being charged for finance. You’ll be lucky if it’s much below 10%, with some wheeler-dealers trying to charge much more than that.
The bottom line of this mathematical mumbo-jumbo is that you can add thousands of pounds onto the price you pay for your car. A £20,000 family wagon might become a £24,000 weight around your neck. And remember; that extra wedge is pure, unearned profit going straight to the lender.
As if that’s not enough, while your car experiences its steepest depreciation in its first year on the road, your loan repayments are linear. The gap between what the car is worth and what you owe just keeps getting wider for months on end, and in many cases you’re only likely to break even after about two and a half years.
It’s completely outrageous what car dealers are getting away with when it comes to finance. Charging such extortionate interest rates should be outlawed; perhaps reduced to a maximum of triple the Bank of England base rate.
Better yet, we could just avoid buying cars without the incentive of 0% interest finance. That seems like a fair deal to me. After all, manufacturers need us to buy their cars, so it’s time we exercised a bit of people power and told them the daylight robbery of finance interest has to stop.