TIPSLIFEHACKS

Hidden Car Loan Costs: Are You Paying Too Much in Commission?

LBC

You're at a car dealership, admiring that shiny new Ford Focus (or perhaps a trusty Toyota RAV4!). The salesperson seems helpful, presenting a finance deal that looks pretty good on the surface. But have you stopped to consider the hidden costs, particularly those sneaky commissions that can significantly inflate the price of your car loan?

For years, car finance commissions have operated in a murky grey area in Australia. Dealers have been incentivised to push certain lenders and loan products, often without full transparency about the impact on the borrower. This has led to some consumers paying considerably more than they should for their car loans, all thanks to hefty commissions paid to the dealership.

The Commission Structure - How Does it Work?

Here's the breakdown: When you finance a car through a dealership, the lender (typically a bank or finance company) pays the dealership a commission for arranging the loan. This commission is usually a percentage of the loan amount. The higher the loan amount, and the longer the loan term, the bigger the commission. Traditionally, dealerships haven’t been obligated to disclose this commission to you, the borrower.

Recent Changes and Increased Scrutiny

Fortunately, things are starting to change. The Australian Competition and Consumer Commission (ACCC) has been increasingly scrutinising car finance commissions, and the industry is facing pressure to improve transparency. New regulations are being considered to force dealerships to disclose these commissions upfront. This shift comes after a significant review of the industry, highlighting widespread concerns about consumer detriment.

What Does This Mean for You?

The good news is that you have more power than you might think. Here’s what you can do to protect yourself:

• Shop Around: Don’t just accept the finance offer from the dealership. Get quotes from your bank, credit unions, and online lenders. Compare interest rates, fees, and loan terms.
• Ask About Commissions: While full disclosure isn't always mandatory yet, it's worth asking the dealer directly: “What commission does the dealership receive from this loan?” Their response (or lack thereof) can be very telling.
• Consider a Broker: A mortgage broker, or a car finance broker, can help you navigate the complex world of car finance and find the best deal, often negotiating with lenders on your behalf.
• Read the Fine Print: Carefully review all loan documents before signing. Look for any hidden fees or charges.
• Be Aware of Loan Term Lengths: Longer loan terms mean higher overall interest paid, and often, higher commissions for the dealership.

The Future of Car Finance

The push for greater transparency in car finance commissions is a positive step for Australian consumers. Expect to see more regulations in the coming months, making it easier to compare finance options and avoid being ripped off. In the meantime, be informed, be proactive, and don't be afraid to question the deal being offered to you. Your dream car shouldn’t come at an inflated price due to hidden commissions.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult with a qualified financial advisor before making any financial decisions.