When you apply for vehicle finance through a dealership, a bank will determine at which interest rate a car loan may be granted to you, BUT that’s not necessarily the same rate that a dealer’s finance and insurance manager will offer you…
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When buying a vehicle through a finance deal, you shouldn’t take the first interest rate you are offered. Here’s how to be more empowered to make sure you aren’t paying for someone else’s bills with your hard-earned money… Over the past 15 years, Mit Mak Motors has grown to become the “number one independent retailer in the country”, so they have years of knowledge and experience to share with you on this subject.
This Mit Mak Masterclass is presented by Bobby Petkov, the CEO of Mit Mak Motors, who explains how to get the best interest rate you can when purchasing a car via a vehicle-finance agreement with a financial institution (such as a car loan from a bank).
Who decides the interest rate that you will pay on your car loan? “The short answer is the bank”, says Bobby.
A dealership’s finance and insurance manager (F&I Manager) loads the application at a predetermined average rate and sends it to the bank, and the bank then calculates your rate. However, it is important to know that the dealer plays a big role in what this rate will be…
The “F&I” is the person at a dealership responsible for obtaining and reviewing purchaser credit applications; they liaise with financial institutions and structure loan agreements based on the underwriting guidelines of financial institutions.
“Beware, the dealer might increase the recommended rate to make more money. For example, the higher the rate the dealer can get you to agree to, the higher the income from that rate they will receive. This is known as the dealer incentive commission (DIC),” he adds.
“In short, the higher the rate, the higher the income for the person who sold you your vehicle. And the more you end up paying for it over the (loan) period.”
Here’s an example of the difference 1% can make on R100 000 purchase over 5 years:
| Purchase Price | Interest Rate | Term | Instalment |
| R100 000 | 10% | 60 months/ 5 years |
+- R2 227,70 |
| R100 000 | 11% | 60 months/ 5 years |
+- R2 278,89 |
The difference is R51,19 a month. It might not sound like much, but if you were to save that R51,19 over 60 months/5 years you would have R3 071,40 extra in your pocket.
“What can you do about it? Simple – ask questions. This is how you will ensure you get the best interest rate available to you,” Bobby continues.
“Ask the person selling to you and then, ask again. ‘Do I sign up at the recommended rate offered by the bank, or do I sign up at the rate you offer me?’
“You have a right to request a copy of this document between the bank and your dealer. If the dealer refuses to give you the document, then maybe they’re not the right dealer for you.”
Sometimes, the F&I Manager will say that your credit rating determines the rate. To find out if this is true, you need to see your report.
“However, 99% of the time, they will not send you your report. You have the right to ask for the podium,” Bobby concludes.
If you’re interested in your credit rating (credit score), click here and Mit Mak Motors will make your report available for free in 30 seconds.
The responsibilities of an F&I manager
An F&I Manager offers various value-added products to protect the client’s financial interest; they must disclose all relevant Terms and Conditions to their clients; they must practice strict legal compliance and behave ethically.
Negotiating the interest rate and the loan term are key factors in getting the best finance. Once the customer is satisfied with the structure of their finance deal, the F&I Manager will request the contract.
It is the responsibility of the F&I Manager to sign all relevant documentation with the client. The responsibility remains with the F&I Manager to verify the identity of the client and supply the financial institution with all the required documentation. Once all this is done, the client can take delivery of their new vehicle.
