Questions and Honest Answers
How do finance brokers work?
The other reason why lenders like brokers is because brokers know how to present an application in the best possible way.
A good Finance Broker listens and understands what their clients need and future. The broker then puts a case together to the lender so they can quickly approve it. I have sat with the offices of several big lenders and watched how they assess deals. The notes that credit sees can make or break a deal. So, having a broker who is good at telling your story will be good to have in your corner.
Each lender has different lending policies. So, what some see as a problem, others won’t. Knowing the strengths and weaknesses of each lender is very important for every finance broker.
There are several types of finance brokers.
The kind that teases you with low rates and offers pre-approvals in 60 seconds to get your details, then they call you and take the rest of your details over the phone, then call you back with a quote and explain why you didn’t qualify for the advertised special. This is the kind of place that will call you relentlessly until you block them or you swear at them. Some companies call each lead three times, and then the trainees call them another three times. Some companies like this use overseas call centres to please shareholders. Good luck getting anything other than the “Advertised headline rate” without them taking a full application.
Some websites now collect client’s phone numbers and email addresses and then sell your details to up to 3 companies like the one above.
Then there is my website, which allows you to look at the best deals available for your profile in the market for your situation without speaking to anybody. There are no advertised special rates, no smoke and mirrors, just total transparency. You can access a personalised quote 24 hours a day. My website has many answers and scenarios. You can call to workshop your questions. It’s a free service unless you go ahead with a loan, then my below-average fee will be included in the loan. I do not push my own products and show you the options for alternative ways to finance your next purchase.
What is the complete process?
I have a look at the application and make sure there are no potential speed bumps. I submit your application to the best lender for your needs. Once they approve it, we will need the car details. If you buy the car from a dealership, they will give you a contract, so just forward that over. If it is a private sale, forward a link to the advert and/or the seller’s number.
We will then need a tax invoice from the dealership or the inspection from the seller (I normally request this). Sometimes dealers can delay supplying this because they are frustrated they did not get your finance business, but that doesn’t happen as often nowadays.
The finance company will need Fully Comprehensive Insurance before issuing the loan contracts. The insurance must list the Rego number (or Vin number) and the person’s name who is financing it. It will have to list the interested finance company. When you get a quote (from someone like AAMI, YOUI Budget, etc.), select yes to the asset being financed, then on the next screen, select the lender we have the approval with. Once you have paid for the insurance, forward the email they sent you with the policy to me. Finance companies will not accept screenshots or just the policy number.
I will then send you a copy of the loan contracts, and the majority of lenders now offer e-sign that you can complete on a mobile phone.
I then upload the file to the lender, and they settle the loan and pay the seller. Some lenders pay “real-time” directly to the seller, and others pay overnight. I email the remittance advice to the seller as proof the money is on its way. Some payments are made teal time and others are overnight transactions depending on the lender.
This can happen fast or slow. Each lender is different. Some have fast approvals and slow settlements teams, and vice versa. (the quote tool shows you the current expected speed of the lenders.)
What is the timescale?
Although I have the latest and greatest software, I can possibly get you a system-approved email from a lender within a few minutes. The reality is that they will officially approve it once they have seen the payslips and verified IDs, which can take hours because it has to be done by a human. So, I won’t be advertising 60-second pre-approvals because I see that as misleading. It is the same reason I won’t promote a rate because not everyone will qualify for it. The crazy low rates you see advertised are for profiles I rarely see, for example, someone in a very high income bracket, owns their home already, has an ultra-high credit score and is looking to finance a lot of money on a new electric vehicle.
I am fully transparent about my rates, as you’ll see if you get a quote. The rate will change as you enter your details. The software makes thousands of calculations based on the information that you enter. Then, based on your profile, you get to see the rate you’ll likely get from the lender you choose based on your profile.
Bank Statements
I am the first to say this feels unsafe because you must enter your bank’s online banking details to get them.
I hold an account with a company called Ilion, it is a long-established business that I have been using for more than 6 years with no problems. I do not need this on every deal. However, sometimes, some lenders will request them. The reports are great, and I am happy to share them on request.
I email or text a link. Once you complete the link, I get a PDF emailed to me with your last 3, 6 or 12 months of banking transactions, depending on what link I send you., the times when they are needed will likely be for personal loans, larger business loans, short-term ABN holders or if there is a discrepancy on a credit file. As you can imagine, they can make or break a deal. I will look for other options if they are not helping your case. As a broker, I will always try to get you the best approval.
Their website is www.bankstatements.com.au if you want to do more research.
Loan Protection
*If I set it up, you will only get it on the loan I have arranged rather than your other commitments.
*In every case I have compared to what I could provide, it’s cheaper for you to get it online directly.
*Many people already have cover with their Superannuation, so investigate that before doubling up on a policy. Maybe change your Super company to one that offers better coverage if your current provider doesn’t.
Refinance existing loan
Feel free to get me a payout figure, the date the contract was signed and the current payments, and I will get back to you to see if it will save you some money.
If your main want is to lower repayments, I will also be able to give you some scenarios.
What about my credit file?
The report will show me all I need to know and show me more than some lenders can see. I am happy to share your information with you. Just ask, and I will send you a copy of your credit file. By the way, I was trained never to share this information.
If you want a pre-approval, most lenders now will leave a mark on your credit file. A few lenders in a short timeframe won’t damage your score too badly.
I work differently from how some introducers work. If I see any potential problems the lender might have with an application, I will call the lender first to see if they will be okay with it before submitting the application. This way takes a bit longer, but having someone in our corner if someone in credit has a problem is worth the few hours’ delay. If I see a potential problem, I will discuss it with you before you get any hits on your credit file.
Only some people know this, so it is worth mentioning. Previous small loans under $5,000 can cause a lot of damage to credit files. They are known as “Payday” lenders like Cash Converters or Wallet Wizard, the kind of loan that lends you $3,000 and you pay back double in a short period. Due to that style of loans being classed as hardship lenders, they work under a different regulation than our lenders do, and they can go against you if they are on your credit file in the last 6 months, regardless of if they went ahead or not. This is mainly due to responsible lending guidelines and credit policies. Afterpay and ZipPay, etc. don’t usually cause any problems with credit files or finance applications.
Multiple applications in a short period of time will also lower credit scores, and that can alter the actual rate you end up with. So be careful online. I speak to many people who didn’t know they had actually lodged an application when they just wanted to see what the repayments would be.
Jargon
Subprime Lenders
Subprime lenders operate under different regulations, allowing them to be more flexible with defaults (paid or unpaid), servicing and low credit scores. Their rates are higher. If subprime is your only option, I suggest finding a cheaper car and paying it off quickly. This can repair a credit file, and after one year, it can give you “referenceable credit”, and that can hopefully be enough to get you into a more expensive car at a lower rate with a prime lender. I am happy to help set up a subprime loan, but I will be very transparent and instead of just saying it will cost you $x per week as per my training, I say if you borrow $20,000, you might pay back $40,000 in 5 years. Hence I recommend a cheaper car in this situation.
The less you spend on the car, the less you spend on interest. The sooner you demonstrate a good payment history, the sooner I can get you approved for a lower rate with a prime lender.
I am trained to say you can refinance the loan at a lower rate in a year. However, there are many things to consider. Subprime deals cost more to set up. You pay a lot of interest in the first year, so after one year, it is likely that a loan on a 5 year term will cost you as much to pay it off as was initially paid for the car and not every lender will look at a “Mid Term” refinance. See compounding interest and Refinancing existing loan.
What alters the rate?
Someone with a property in their name will get a cheaper rate than someone who’s boarding.
New cars will be cheaper. The older it gets, the higher the rate.
Some lenders offer government-discounted “Green Fuel” Discounts on electric and hybrid cars.
Credit scores can also make a difference.
Some lenders use an “LVR” calculator (The book price vs the amount you are looking to finance).
Loans over five years can have higher rates.
Tips:
To get an accurate comparison from the lenders, enter a car as close as possible to what you will likely get. It will help us get the best lender for your situation.
Why do you need my number to get a quote?
With me, you’ll only get one call. I’ll leave a message and send a text. If you don’t reply, I am okay with it. If I can see you’re a regular visitor, you’ll get fewer calls or a text. You won’t get a call if I am busy because I’d prefer to ensure my existing clients get the best service. Time is less of an issue with my new software. It saves me time and keeps my fees lower. My software has direct access to several of our lenders, so I can get you an approval faster than most.
Just a heads up, the mobile number that I’ve had for the last 15 years can sometimes show as a spam caller.
Bank Statements
I am the first to say this feels unsafe because you must enter your bank’s online banking username and password to get them.
I hold an account with a company called Ilion, it is a long-established business that I have been using for more than 6 years with no problems. I do not need this on every deal. However, sometimes, some lenders will request them. The reports are great, and I am happy to share them on request.
I email or text a link. Once you complete the link, I get a PDF emailed to me with your last 3, 6 or 12 months of banking transactions, depending on what link I send you. The times when they are needed will likely be for personal loans, larger business loans, short-term ABN holders or if there is a discrepancy on a credit file. As you can imagine, they can make or break a deal I always try to get you the best approval, sometimes the information they provide can help your case, others they don’t.
Their website is www.bankstatements.com.au if you have more questions.
Casual Employment
Types of Income and Visa
We can’t help people on student visas, and if you are here on a Visa with an expiry date, then the loan will have to finish at least a month before the expiry date.
PPSR Search / Purchase of Financed Car
By law, in WA, a dealership or a private seller does not have to disclose if the car is recorded on the damaged register (unless you directly ask). For $2 you can get a PPSR search on the government website. It takes 2 minutes, and all you need is the VIN number. If you want a free report, go to Budget Direct, which offers this free service. The report will show if the car has been previously damaged beyond economical repair in the eyes of the insurance company. It will also check for finance owing on the car. If finance is owing (showing as encumbered), this is not usually a problem. We just need a payout letter for the loan secured on the car or proof the loan has been paid out. However, most lenders will need the encumbrance removed before settling the loan. This can slow down about one in 50 loans. Regardless of where you buy the car from, if there is finance owing on the car, and we get a payout letter upfront, then when the loan settles, the lender pays the finance company and the seller at the same time. For example, if the agreed price is $30,000, the finance owing is $15,000, then the finance company just pays $15,000 each at settlement.
If the car is recorded on the damaged register, this will restrict the lenders available. Sometimes, there are innocent stories regarding why they are on the register, like if the parts take six months to arrive. They have to pay for storage and a rental car, and then the insurance company can just write it off. But regardless of the reason, the car should be a lot cheaper if you consider buying one because when you come to sell it, it could be worth up to 30% less than the same car without a mark on its report. Ask for pictures of the car before the damage. They will also help when you want to sell it. Flood-damaged cars are not allowed back on the road due to potential electrical and safety issues. Cars that have been damaged beyond repair are also only fit for scrap. There are more expensive car history searches you can do, and they offer a more detailed history of the previously recorded kms. Carify is one of many options. They charge $10 for their more comprehensive report
E-Sign
The only issue I have seen regarding e-signing is when clients don’t get a signal on their phone because they are remote, and the SMS Verification code will not come through. Generally speaking, this is the quickest way for everyone involved. Not all lenders offer this, especially business-style loans. If this is important, please let us know upfront, and then we can look at more options.
Alternative options to a Broker
Re-drawing from my home loan?
However, the mortgage rates are usually less than those of a secured car loan. And if you do it the right way, it can work out cheaper for you in the long term. For this plan to work, you must be disciplined and stick with the plan. Otherwise, don’t do it.
If you redraw the equity in your home and increase the mortgage payments by what the payment would have been on our calculator, you will be in front in 5 years. Your mortgage should be a lower rate than a secured car loan. If not, you need a mortgage broker more than me.
There is an even more innovative and foolproof way. You get a re-mortgage, and you can ask for a separate account for what you are looking to finance. For example, if your house is worth $800,000 and you owe $500,000, you then re-mortgage for $550,000 and request for the $50,000 to be in a separate account. You can then make extra payments on this account to reduce the term to 5 years. For example, at the current rates, paying $1,000 to that account will have it down to $0 in under five years. With this method, if you can demonstrate the extra cash is for 100% business use, your accountant should still be able to claim it against your tax. I once bought a franchise and I set up a separate mortgage account against my home and had it on interest only. My accountant could see that 100% of the funds from that account are being used to generate income so was happy to claim the interest against my income
Tip. If you refinance, go back to your original mortgage broker. They know your profile and home, etc. They will be grateful for the repeat business. I say go to a Mortgage Broker and not a bank because by a law called “Best Interest Duty”, Mortgage brokers have to disclose all available options to you that they have access to. This law does not cover finance brokers or car dealers yet. Banks don’t have to either, which is another reason why Mortgage Brokers now write more mortgages than banks.
Numbers crunched below are with assumptions made:
$50,000 over 5 years at 8% (A realistic rate on a 5-year-old car) would be $1,034 including all fees, etc.
$50,000 over 5 years at 6% would be $984 per month over 5 years.
So, you may save $50 per month.
There are negatives:
*If you struggle with repayments, you are more likely to lose your home and not just your car.
*This process can take longer than six weeks.
*It can be too tempting not to pay the extra payments or spend more on a car than you would usually have, which could cost you more in the long run.
*This plan will not work if you have under 80% equity in your home because you will likely have to take out Mortgage insurance. (e.g. House worth $550,000 with $500,000 owing)
*The interest rate on a mortgage is not always fixed, so if the economy changes fast, this might go against you.
*Payments are approximate and examples.
Dealership finance
Keep an eye out for 0% or 1.99% deals, etc. I remember once a new ute was for sale, priced at $58,888 with a 0% finance offer. The following month, the 0% offer finished, and the same ute was listed for sale at $48,888. The scary thing is that the dealership sold more of the utes in the first month than in the second month. I know this because I was working at the dealership at the time! (On a ute, if it is business use, interest may be a tax deduction).
Manufacturers sometimes offer “Guaranteed future value” deals on new cars. Check out their website to see if there are any current offers. To be fair, this can be a great product if you want the lowest possible payments and no risk at the end because, if the Kms, servicing and condition are as per the agreement, at the end of the term, you hand back the car. And walk away with nothing. This product is just a loan with a residual with the dealership saying they will buy back the car for the agreed price. Some people like the low-risk aspect, while others don’t like the forced residual payment.
Every dealership is different. There are some great operators out there. But unfortunately, there are still some that will say and do anything to get the deal. I recommend Googling the dealership before you do anything else. This will give you feedback from their previous clients and show if their priorities are on profit or clients. Asking the dealership for a quote and depending on how they respond will give you an instant idea of their ethics. How did they calculate the payments if they give you payments but won’t give a rate? The reality is that most dealerships (not all) have a floor plan (a loan for their stock), which means they are likely to use that lender for their finance. So if they know your profile and the car you are looking at, there is no innocent reason I can see why they can’t give an accurate rate within minutes.
As you can see on our quote tool, you can get all the relevant figures across our panel of over 40 lenders in just a few minutes. By the way, Finance Brokers must pass an exam, hold relevant insurance, hold AFCA Membership, prove 20 hours of training per year, have regular Police and Credit Checks, and comply with the NCCP rules. Dealerships are still exempt from this.
A small loan or a short-term loan
A personal loan typically has no exit fees. They are quick and easy to arrange as well. I also have secured loan lenders with lower rates, and some don’t have exit fees. With personal loans, the rate goes off how stable you are in your home, job, and, most importantly, your credit score. Note, on personal loans, they will likely need to see your last three months’ banking transactions.
A credit card might be your cheaper option if you control your spending. They can be set up in 3-4 days, they have no exit fees, and you only pay interest on the balance. Typically, there are no or minimal set-up costs, and if you do get a cash advance, it works out at $200 per $10,000 that you withdraw. It can be a great alternative if you search for credit card deals online. Once you have the money, shred the card or give it to someone to look after it to remove temptation.
If the credit card rate is 18%, the interest will be close to $150 monthly for every $10,000. The sooner and more you pay off the card, the less the interest will be. You might be able to switch the card to a better deal later.
If someone calls me asking for a loan of under $10,000 on a car older than 12 years, I ask them to get a quote from their bank for a personal loan and then call me back with it. Even though the rates are slightly higher at that age of car for a personal loan, because it is a smaller amount of money, and I charge a small fee as well as the finance company to set up the loan. It can sometimes work out cheaper on a personal loan from their bank than going through me.
Loan Consolidation/Compounding Interest
What few people talk about is compounding interest and how it works. For example, for a consumer loan for $50,000 over seven years with payments of $900 per month (interest rate 12.65%), the first payment would be $526.92 interest and $373.08 of the amount owing (Principal). The last payment totals $9.39 in interest and $890.62 in principal.
When you reach the halfway point, 42 months, the payout figure would be $30,416 (not $25, as some think). If you took this loan out again at the same rate with the same payments, it would end at the same time, so you are protected as a consumer in Australia. However, most secured loans have exit fees and set-up costs, so bear that in mind. If the loan was set up for business use, that would probably cost you more to change *see Business loan vs. Consumer loan.”
Getting a loan to help my credit file
However, suppose you have the cash saved already and are only getting finance to increase your credit score and have no other plans for your cash (Like a deposit on a house). In that case, I think you should consider paying cash for the car and getting a credit card. The credit card also has positive reporting, which will build your credit score (providing you pay the payments on time) and save you interest. See the answer about “credit file” for further information.
*Note: If you can’t trust yourself with a large credit card limit, just get one with a low limit.
How often should I change my car?
What can you finance?
Residual/Balloon
I am trained to say, “Get a residual”. It gives me another chance for your business in 5 years, and it allows the finance company to charge you more interest on their money.
If you take the loan over seven years, the payout figure will be close to what the residual would be at the 5-year mark. Using the same numbers above, the monthly payments over seven years would be $762. The advantage of the 7-year term is that if you still like the car, just keep it for longer. The longer you keep it, the more equity you will have, the less you will pay in stamp duty, and the profit the dealerships make from each transaction.
Notes:
*Some lenders charge more interest on loans over five years.
*Most lenders don’t offer residuals on assets over five years old. (not always the case, especially for business purchases). 5-year terms are typically 30% max, but some lenders may increase to 40% depending on a few things.
*Residuals for businesses can be good for growing businesses. It helps with cash flow and lowers commitments.
*When comparing residual payments, ensure you get the exact number to avoid confusion. The residual can be set according to the car’s purchase price, the price the valuation book says or the price paid after the deposit.
*Sometimes, it can be worth getting a residual if servicing is tight or if you want to have the option of lower payments on a contract. For example, if you want a mortgage in the future or like the option to pay less if required.
The above figures show that the loan can be set up with a residual. However, if you choose to pay the standard payment of the 5-year term with no residual, your loan will end in 5 years with no final residual payment. This trick will not work on Business loans.
*with most lenders on a consumer product, if you take the loan with a residual, then increase every payment to what it would have been without a residual due to compounding interest, the loan should finish with no residual. *I am only sharing my opinions and not giving advice
Private Sales
Be aware that if the car is outside the manufacturer’s warranty, there will be no warranty. I recommend getting an independent inspection to be safe. (search for inspections)If we set up a secured loan, the lender must put the car on the PPRS Register. So, the lender needs to make sure they are funding an actual vehicle (and not a holiday) and are paying the seller directly. So, to protect everybody involved in the sale, they ask the seller to upload some pictures of the car, the seller’s ID, the Rego papers and proof they own the bank account that the funds will go to. The inspection typically takes the seller 10-15 minutes and can be done with a mobile phone. I need to enter the seller’s name, phone number and email address, and then the system will send a link for the images and documents to be uploaded.
We usually use a company called Verimoto for this.
Novated Lease
The negatives.
*If you change jobs, the new provider might not take on your lease, so nobody can claim the GST back, leaving you to pay it.
*The lease is structured under a Commercial agreement, so the exit fees will probably be crazy (see Business vs Consumer).
*You have to finance the total amount of the car, so you cannot pay a deposit to lower the interest or payments.
*You have to have a residual as per the ATO Guidelines.
*Most cars attract Fringe Benefit taxes. Electric and some Utes may be exempt.
*Some clients might get better tax benefits if they use their car to mostly generate income than they would with a Novated Lease.
*Government workers like Nurses and Police can usually finance the car how they like and then claim the repayments via a salary sacrifice to reduce their tax
*The interest rate is often not disclosed. In the majority of cases I have seen, the rate is higher than a conventional loan.
*On a maintained package, every month, you will be paying into an account that is hard for you to access
*Some providers charge up to $1,000 per year in maintenance fees.
Business use
SMALL PRINT on Business loans
Example – A commercial loan for $50,000 over 60 months with payments of $1,000 per month means you will be paying back $60,000. The banks argue that you have signed a contract to pay them back 60 times $1,000, so even on day one, they want their $60k. This case would retain 100% of the unpaid interest (common with the big 4 banks). There are many different lenders, and there are many different ways they manage to charge extra. Some charge extra repayments, and some retain 30% of the unpaid interest. I am always transparent about this, and most people who get business loans tend to let them run to the end, so this will not put them off going ahead
Business Overdraft
What can you finance?
Business use loans
Loan Amortisations schedules are easier to get for Commercial loans (not impossible for consumer loans). They break down the interest charged in each calendar year so you can claim that back against your income.
Chattel Mortgage or Lease
With a Chattel Mortgage, the asset is invoiced to the purchaser and the purchaser then claims back the GST, depreciation and interest. You cannot claim the pay,ment as well.*
With a lease, the asset is invoiced to the Finance company who then claims back the GST and then you claim back and then you claim the Payment and the GST component of each payment but you cannot claim the GST on the asset, and depreciation or the interest.*
*I am not giving tax advice, I am just explaining things as I understand them. Seek advice from an accountant about what might be best for you and what you can claim.
Low Doc Loans
In 2010, I Financed a Concrete pump for Alex and Casey at West OZ Concrete Pumping. They wanted a second pump and me to finance it because his bank had said no. The problem was he had not been in business for long, so the lender required a deposit for security. We put together a case and negotiated with the lender to take his second pump as security instead of using their cash. Theirs is one of many businesses I have enjoyed watching grow over the years.
PPSR Search / Purchase of Financed Car
By law, in WA, a dealership or a private seller does not have to disclose if the car is recorded on the damaged register (unless you directly ask). For $2 you can get a PPSR search on the government website. It takes 2 minutes, and all you need is the VIN number. If you want a free report, go to Budget Direct, which offers this free service. The report will show if the car has been previously damaged beyond economical repair in the eyes of the insurance company. It will also check for finance owing on the car. If finance is owing (showing as encumbered), this is not usually a problem. We just need a payout letter for the loan secured on the car or proof the loan has been paid out. However, most lenders will need the encumbrance removed before settling the loan. This can slow down about one in 50 loans. Regardless of where you buy the car from, if there is finance owing on the car, and we get a payout letter upfront, then when the loan settles, the lender pays the finance company and the seller at the same time. For example, if the agreed price is $30,000, the finance owing is $15,000, then the finance company just pays $15,000 each at settlement.
If the car is recorded on the damaged register, this will restrict the lenders available. Sometimes, there are innocent stories regarding why they are on the register, like if the parts take six months to arrive. They have to pay for storage and a rental car, and then the insurance company can just write it off. But regardless of the reason, the car should be a lot cheaper if you consider buying one because when you come to sell it, it could be worth up to 30% less than the same car without a mark on its report. Ask for pictures of the car before the damage. They will also help when you want to sell it. Flood-damaged cars are not allowed back on the road due to potential electrical and safety issues. Cars that have been damaged beyond repair are also only fit for scrap. There are more expensive car history searches you can do, and they offer a more detailed history of the previously recorded kms. Carify is one of many options. They charge $10 for their more comprehensive report
E-Sign
The only issue I have seen regarding e-signing is when clients don’t get a signal on their phone because they are remote, and the SMS Verification code will not come through. Generally speaking, this is the quickest way for everyone involved. Not all lenders offer this, especially business-style loans. If this is important, please let us know upfront, and then we can look at more options.
Tips
Completing the application
Application
Everyone’s situation is different. If you make any changes like the ones listed below, please add notes, and we can discuss the best way to present the application for your case. I am on your side to get this over the line, but I will not break any laws to get you the approval.
The way we put the application together can be make-or-break deals. If the application is not likely to be approved for any reason, I will discuss it with you and advise when I have all the information available.
Kids
If you have kids that do not live with you and you pay child maintenance, then so long as we declare the child maintenance, we will be okay showing you as Zero dependants. (In this case, we would go with the higher payment amount you are making or the agreed outgoing on the child support documents.)
If you have a child who is at home but is not financially dependent on you because they are working and supporting themselves, then they do not need to be declared.
Living Expenses
Suppose you have a mortgage or are renting, and your partner contributes to the payments. In that case, we can generally allow half of that payment. Some lenders need proof of your partner’s income, and some don’t. Supplying both payslips upfront may give us more options, but this is not always a deal breaker.
Please declare all income and expenses. The income can be Payslips, Centrelink, pension or an investment home. When lenders see your credit file, they will see your open loans and credit cards, showing them the current balance and payment history. I also see your credit file before the lenders do, so we can discuss that before applying to the lender if required.
Finance companies must stay within responsible lending guidelines. They seem more scared of being fined by ASIC for lending money irresponsibly than the risk of a deal going bad. All lenders have a credit policy in place, and they are all different. Some won’t go below a certain credit score, some won’t allow any defaults, and some won’t accept a loan if they had a recent payday loan enquiry. But they must prove you have more money to cover your living expenses and all financial commitments.
Many lenders use HEM (Household Expenditure Measure) to calculate living expenses. Some use Scaled HEM, increasing your living expenses as the applicant’s income rises. Even though all lenders use the same guidelines, they come out with different calculations. For example, a single person would be $1250 per month with one lender and $1,500, per month with another. A couple would be from $2300 per month, and each child would be at least $350 per head.
They look at the higher number from the one provided by the client or their internal HEM figures. The HEM covers shopping, travel and general bills. Rent/Mortgage is extra, and so are other financial commitments. Credit cards are calculated at 3.5-4% of the card’s limit. So, a Credit card with a limit of $10,000 and a balance of $0 is up to $400 per month as an expense.
E.g.:
$1,250 – for a single-person HEM
$350 – for their child.
$1,750 – for their rent.
$ 400 – for their credit card.
Totalling – $3,750 per month for outgoings.
If the income is $5,000 monthly, there should be enough left over for $1,250 to repay the new loan.
*The figures are examples. Each lender is different, and there is no movement on this with any prime lender, even for FIFO workers who are rarely home.
Subprime lenders have a more relaxed way of looking at living expenses, but their rates and fees are much higher.
So long as we are transparent to the lender, they are okay with what we tell them.
Filling out the application on my website will put your data in my system, allowing me to view your profile, and then I can give you more accurate feedback on your situation
Previous Finance
Having the answers ready for the expected questions from the lender can speed up the approval. I see your credit file before lenders, so we can discuss more if required before applying if your credit file differs from your application. Closed accounts can take a while to be removed from credit files, and people sometimes forget about open credit cards with a $0 balance.
When buying
Picking the right car.
For most vehicles under five years old or any Japanese / Korean cars under 10-15 years old, you will lower your chances of buying a lemon.
Search for reviews on YouTube to go over common problems for most used cars. In just 10 minutes, you will get an owner’s or a mechanic’s view, and I bet some videos will shock you, especially if you are researching electric cars.
Be aware that high-performance and luxury cars can cost more to maintain. The tyres, brakes, insurance, fuel etc can double in cost. I once bought a very economical car and changed it within a year due to boredom – so picking the right vehicle is important.
When viewing a car
Ask about service history and when the last service was done. Some clients take a picture of the last service stamp and then call the place that serviced it to see if any major repairs had been advised and not completed. Servicing cars can be expensive, so make sure there is no expensive timing belt that is due to be replaced. Google will let you know the intervals, costs and other things to consider.
Have a look under the bonnet of the car. You will see bolts on the hinges that hold the bonnet in place. They should not have any damage to the paint. If the paint is cracked, the panel has been removed at some point. It is the same principle on each panel. Overspray is a clear sign the car has had paintwork as well. Overspray or a new panel alone would not stop me from buying a car, but it would make me investigate it more.
If you want to buy privately or from a dealership, consider getting a professional inspection. Independents like Todd charge $200-$250, and the bigger companies like Redbook charge up to $350. (Todd does a better job from what I have seen). Alternatively, you can ask to take the car to your mechanic or ask your mechanic to go and inspect the vehicle for you. Supercheap Auto offers a service for $30 ($24 for members) where they can plug into the car’s computer and read the stored faults. It is not uncommon for heaps of historical fault codes to show on the report, and they can be as innocent as a low voltage that happened years ago or show you a genuine current fault.
Don’t get emotional
Treating salespeople with a cold shoulder will not help anybody. I say this because I have seen it so many times. When a customer isn’t sure how to negotiate, or they have been burnt before, they can sometimes come across as cold or rude. Don’t be that person. It will get their back up and stop them from wanting to help you negotiate. I am not trying to patronise here. I see it as a shame when a genuinely friendly salesperson gets snubbed for no reason. Unfortunately, this happens a lot more than you would expect. I also know that they are usually the most profitable deals.
Plan Ahead
· Knowing the money is waiting with fewer potential speed bumps ahead gives you peace of mind.
· Knowing what your repayments are
· When you tell a seller you have a pre-approval, it shows you are serious.
· From a salesperson’s view, it is good because they can lose several deals per month on deals they can’t get set.
· It also means you get the car quicker.
Google the car brand and look up common problems before you look at it. Some cars are famous lemons, and they stand out as cheap in comparison to other brands.
When you go visit the dealerships, always have another “car to view” lined up after the one you have considered buying. This removes the pressure into a sale on the visit and helps if you don’t have time or energy for the hard sell at the end of a test drive. Tell the salesperson you have another car to look at after his one. It works best if it is true. But if you are using it just as an excuse to walk away, at least have a made-up car ready in your mind because any good salesperson will ask about their potential competition. It also gives you an excuse not to make an emotional decision and rush into signing a contract after a test drive. I am bringing this up because I speak to many people who sign contracts without thinking and want to end their loans early now that hindsight is 20/20.
Regarding the contract at the dealership, once that is signed, it is a legally binding document in WA. If you sign it and change your mind, the dealership can take you to court for up to 15% of the car’s purchase price. I know some states have cooling-off periods. However, in WA, if you put a deposit down on a car and cannot get the finance, you should get that deposit back because the contract is no longer valid.
How many dealerships work
What about my Trade Car?
Another way to attract a wholesale buyer is to list it on Gumtree – typically, this will attract dealers that are short on stock and will make you an offer. Alternatively, you can sell it privately, and the best place for that is Facebook Marketplace. If you can put up with the PayID Scams and the no-shows, this way will leave you thousands better off.
If you have a trade car, spend a few bucks to get it detailed first. The fresh look will increase its value, and your return on investment can be massive. If you have no kids to help or are short on time, there are places at shopping centres or even better mobile detailers that will be happy to help for $150. If you are short on time, drive it through a car wash.
Call in a few other dealerships on your way to the car you have seen. Ask them to make an offer to purchase the car directly from you. You then know what the car is worth in the trade. Think about it. The dealership advertising to buy cars will pay more for a car they have physically seen over one described to them over the phone. If you strike a deal with a dealership for your trade, they should be able to pay the following dealership directly and maybe even drop you off or shout you an Uber to go and collect your new car. I would finance the difference unless you have just read about a cheaper payment method. By the way, when looking at your next car, if a trade car is brought into the conversation, then the focus will be on the price of the trade car and not the price of the car you are looking to buy. You will probably find they start low with the offer on your trade car to give them room to negotiate.
Dealerships can make a lot of money on trade cars that they “UV” (Under Value). My advice is to look online first and see what other cars like yours are selling in your area, and depending on what car it is, you should be $2-3,000 less than the cheapest equivalent advertised car as a trade price minus any genuine spending that needs doing on the car like tyres etc. Doing this will give you a more realistic valuation. Don’t confuse yourself with Redbook valuation. When valuing your car, search from price Low to High (this is how the dealerships do it). We are in a declining market, and there are still some unrealistic asking prices with both dealerships and private sellers.
My brother is always looking for stock at his car dealership in Rockingham (where my office is located). He has helped many of my clients by giving them a fair market price for their trade. View www.burnettcars.com.au for his contact details. The last time I looked, he was the highest-rated dealership in WA on Google reviews, so he is clearly doing the right thing by his clients as well. If you send him pictures and a description, he can get you a valuation via email. He is the one I used to work with back in England. There are not many places I will recommend, but I can recommend buying a car from my brother with my hand on my heart.
If you do trade your car at the dealership, ask before you sign the contract if you can sell it yourself and just bring in the cash at collection. Most dealerships will be okay with this, especially if it is mentioned before the contract is signed. If you buy the car on a Saturday and then pick up your new car the following Saturday, that will give you enough time to advertise your car and end up with a few extra grand in your pocket.
By the way, having a buyer ready for your trade can open the door to an easier private sale as well. Some clients get their new car and then sell their old one when they have more time. They then use the cash from their old car to pay off old loans and credit cards or put it towards a holiday or home improvements.
Negotiations
Not all dealerships offer discounts. Some are fixed prices. Dealerships do a lot of research on their stock prices and how they compare against other cars for sale. They have advanced tools showing how long the average selling time is and the previous sales prices, etc. However, they are human. Just asking for a discount is always a good idea. However, if you can provide the dealership with other options available to you in the market and it shows that their car is now above the average price, then showing them cheaper local alternative cars that are like for like and cheaper will help your case for a discount. If you can’t find a cheaper car in the same city, they will know it is the most reasonable and less likely to discount.
It can help to ask how long the car has been in stock. They will know it has been advertised online since they got it in stock, so they know it could be a trick question. If you look closely, some adverts have dates the pictures have been taken on the dashboard, or you can tell by the seasons in the background how long ago the images were taken. If the car’s heater is set to max heat and we are in the middle of summer, that could be another clue.
If you are buying from a franchised dealership funded by a floorplan, then as soon as that car hits 90 days in stock, they have to move it on. The finance company that provides the floor plan charges extra interest after 90 days, making that stock a burden. The Car Sales app can be helpful if you want to keep an eye on the market. It tells you when price changes happen and stores the date you saved the car. I genuinely sympathise with the dealers because Car Sales charge dealerships up to $80 per inquiry made. If you press contact the dealership, then the dealership is out of pocket. The opening line to the dealership can be, “I just worked out how to get your number without making an enquiry via car sales”, which will show you care about them and hopefully get a good start to the conversation. Just scroll down to the bottom of the advert, and you will see their name in the small print. Then, Google Maps the dealership to see by their reviews if it is a dealership you want to deal with. Look on AutoTrader and Facebook Marketplace. Autotrader has a dealer-friendly advertising system that attracts dealers who don’t want to be involved with the media giant CarSales. There are fake adverts on Marketplace, so don’t give any deposits until you have seen the car.
You don’t have to be on the premises when signing the contract. You could call them back in just ten minutes. The technology usually is there for them to e-sign a contract. Doing it this way will let you get back to your day quicker, but if you like the part where they introduce you to the aftercare and their finance person, sign on the premises. Verbally agreeing to the car over the phone can sometimes help with negotiations. If you are in the dealership, they still have some emotional strings to pull on, but when you walk away, you make it an even playing field. When they know you are home and have other choices.
It is sometimes worth looking interstate. This is more relevant currently to people in WA. There are more car buyers than sellers in WA right now, which differs from the East, so the prices are down over East. Shipping will be $1,600 – $2,500, and it will take up to three weeks, then it will need a pit inspection (About $90). So, if the car is a bargain, it might be worth looking into. It is where many WA dealerships are currently getting their stock from anyway.
Buying from Auction
Don’t forget about
Stamp Duty
Don’t forget about stamp duty, this is a government fee. It is included in the price of new cars, and most cases, it is an extra on a used car. All dealers I know will happily pay stamp duty on your behalf. And my lenders have no problem financing it if the book price agrees except for private sales.
If you push, some dealerships can have this thrown in instead of a discount, especially on cheaper cars, the longer you make the dealership wait for an answer, the better the chances are, but the chances of someone else beating you to it also increase stamp duty is not mentioned or if you buy a private sale, you will get an invoice and you will have 4 weeks to pay for it from the date you bought it. To calculate the cost, click here
Aftercare / Protection
The second option is going to an independent window tinter or detailer and chatting with them about a protection kit. They can generally get trade-only stuff and usually care about their reputation. There are many I recommend, including the team at AAA_windscreens. Feel free to mention that Eric Burnett sent you. I don’t ask for anything from them so that you get a better price.
The third option is the dealership can install it. At the dealerships, it usually comes with some guarantee that if the paint is damaged, then they will repair it for free. They usually charge more but chuck in “free” tints. By the way, if you get tints, go with the newer Ceramic tint. It will be more expensive for whoever does it, but it is worth it. It is excellent at keeping the heat out and won’t affect your mobile signal as much as the older carbon/metal-based products. If it is supplied by a dealership, then you will likely need to pay extra stamp duty on the extra cost.
Warranty
You will get a 3-month statutory warranty if you buy from a dealership. To be honest, this does not cover much. They just have to make the car road-worthy. Even batteries are not covered by law, but the right dealership might help you depending on many things.
If you are to buy a warranty, there are two categories, each with different types. One is insurance backed and underwritten by a 3rd party insurance, which typically has better cover. APRA regulates it, and because of that, the commission to the provider is capped at 20% of the total RRP. Typically, this is a better product with less chance of a dispute over a claim. This is what I offer, even on private sales.
The other paid-for warranty is classed as a mechanical breakdown product. APRA does not back this, and the provider has more discretion regarding claims. Technically, this is not a warranty, which is how they get past the commission cap/APRA regulations. Dealerships can use both products, so it is worth asking questions and researching.
With both paid-for options, you should get offered different levels of cover based on the age and kms of the car. They might limit the cost per claim and what you can claim for.
Whether you need a warranty or not is up to you. Cars are more reliable now. However, there is a lot more on them to go wrong. Have a look at when the manufacturer’s warranty expires. If there is a long time left, is there any point in getting one today?
I know of clients who have claimed over $30,000 on the warranty, and I know others who have never made a claim.
All warranties I know of require you to get the car serviced at their recommended intervals, so look out for short service intervals because if you miss a service, the warranty could be void.
Finally, look out for the “Free” warranty that some still give. This was probably more important to mention 15 years ago, but some still offer this, so worth noting. Some dealerships offer you a free warranty for 3 years. You might still see this advertised online. Just make sure you read the small print. With the ones I have seen, you must service the car with them and the cover is limited to $500 per claim on just internal parts of the engine and transmission. I cannot think of any examples where the dealership would not come out in front in the event of a claim.
Roadside assistance is available cheaply if you shop around for it. You can get three years for less than one year with the famous companies. I do offer this as an addition to the warranty. The cover is great because they subcontract the recoveries to the same contractors.
PPSR Search / Purchase of Financed Car
If the car is recorded on the damaged register, this will restrict the lenders available. Sometimes, there are innocent stories regarding why they are on the register, like if the parts take six months to arrive. They have to pay for storage and a rental car, and then the insurance company can just write it off. But regardless of the reason, the car should be a lot cheaper if you consider buying one because when you come to sell it, it could be worth up to 30% less than the same car without a mark on its report. Ask for pictures of the car before the damage. They will also help when you want to sell it. Flood-damaged cars are not allowed back on the road due to potential electrical and safety issues. Cars that have been damaged beyond repair are also only fit for scrap.
There are more expensive car history searches you can do, and they offer a more detailed history of the previously recorded Km’s. Carify is one of many options. They charge $10 for their more comprehensive report.