Car finance study confirms it pays to shop around

A study of retail car loans has revealed differences approaching 50 per cent on interest payments between credit unions, banks and dealer finance schemes, along with massive differences in fee scales.

The research project, run by Your Money Magazine, looked at over 120 loan products nationwide, calculating the total cost of a $20,000 loan over four years. “We took in every available bank, credit union and finance company (dealer group) loan available in Australia – 123 loans in total, including all the major banks,” managing editor Jackie Pearson told motoring.com.au.

Credit unions emerged the best, the Teachers Credit Union topping the table overall with a $20K secured loan for a new car at 8.39 per cent reaching $23,727 over four years.

The best any bank could come up with overall came to $25,114. “And that’s the most competitive in a highly competitive environment,” Pearson said.

Dealer finance performed the worst, she said, with total interest payable on a typical loan coming to $6718 for the same loan amount and period. “So you can save up to $3106 – that’s a 46 per cent difference – by going with the best of the credit union loans.”

Interest rates on the best seven credit union loans in the study ranged from 8.38 to 8.99 per cent. By comparison, the best seven bank loans ran from 9.99 to 10.85 per cent, while the dealer loans ranged from 13 to well over 20 per cent. The Your Money calculations of savings were based on a rate of 15 per cent.

The study also picked up some sneaky fees. “Some credit unions will waive the application fee, but most lenders charge between $75 and $150 to set up the loan, while some application fees were over $200. Only 16 loans – usually banks – had ongoing fees and some were as high as $120 a year,” Pearson said.