Australians’ use of car loans to finance new vehicles has doubled since 2009 and is now the method of choice for a fifth of consumers.
According to data from Finder.com.au, 19% of new car sales are financed through a car loan.
Going off figures from the Australian Bureau of Statistics which show 225,197 car loans were taken out in the year to November 2018, Finder insights manager Graham Cooke tells AutoTalk the changes to dealer financing regulations will favour consumers in 2019.
“Consumers deserve the peace of mind that they can go to a dealer and get the same rates as they would with a normal lender,” he says of the Australian Securities and Investments Commission banning flex commissions late last year.
Without the flex commission practice which the banking royal commission’s Kenneth Hayes condemned in his interim report, responsible lending will still benefit consumers and dealers alike in 2019.
Finder says the average car loan interest rate sits at around 6.3% currently, and against the averaged financed car selling for $36,139, the comparison site expects a $513 million windfall will be paid in interest.
“Before this regulation (banning flex commission), car buyers could be offered a rate much higher than they deserved with no real way of knowing,” Cooke explains.
“The new regulation is good for car brands and their dealers too; by providing customers with more transparency, they’ll be seen as more trustworthy,” he adds.
Cooke advises consumers to “learn about the car loan rates available online before you go to buy”.
“In all financing matters, knowledge is power – use it to improve your personal situation,” he concludes.
The Australian Financial Review has revealed this week that ASIC is investigating the $8 billion motor vehicle finance industry, prompted by the legal action taken against BMW Australia Finance in 2016 after dealerships offered loans to consumers who couldn’t afford them, which were approved by BMW Finance.
A loophole in lending laws was highlighted in the royal commission regarding dealers’ ability to offer “point-to-point” car loans to consumers without needed a credit license, by sending loan paperwork for approval to banks which are bound by credit licensing and responsible lending laws.
Consumer Action Law Centre chief executive Gerard Brody tells the Fin Review the loophole needs to be closed.
“There are significant risks for people in dealing with sales people who aren’t obliged to comply with any legal standards,” he says.
“[It] may mean you end up with a loan that might not be appropriate,” Brody adds.
