Dealer markup
Extra interest a car dealer adds to a finance rate to make a profit on the loan. It can cost you thousands over the term.
A dealer markup is when a car dealer arranges finance for you and adds a margin on top of the lender's rate. The lender might offer, say, 10% p.a., but the dealer quotes you 14% and keeps the difference.
It is legal, but it is often not made obvious. Over a full loan term that gap can add up to thousands of dollars in extra interest for the same car and the same lender.
The finance offered on the spot at a dealership can be convenient, but convenient is not always cheap. It pays to compare before you sign anything.
An illustrative example
These numbers are round and made up to show the effect, not a quote. Say you borrow $15,000 over five years. At 10% p.a. the repayments are about $319 a month and you pay roughly $4,100 in interest. At 14% p.a. they are about $349 a month and the interest is roughly $5,950. Same car, same borrower, about $1,800 more over the term. Longer terms make the gap bigger. Use our calculator to run your own figures.
How dealer finance is paid for
Many big car brands have their own finance arm. Other dealers usually arrange the loan through a finance company. Consumer NZ says that when a dealer arranges your loan you will likely be charged a broker or dealer referral fee, which is what the dealer earns for being the go-between. How that payment is built into your deal differs between lenders and dealers, which is why the rate on the page you sign matters more than the rate in the advert. See our dealer finance vs broker vs bank guide for the wider picture.
What the law makes the lender show you
Under the CCCFA, you must get a disclosure statement in writing before you sign. It sets out the amount owing, the annual interest rate and how interest is calculated, all fees, security, and the total you will repay. Lenders must not mislead you in adverts or contract terms. If the statement is missing or wrong, you can cancel at any time. You also have five working days after disclosure to cancel the credit contract. If you have already driven the car away you still have to buy it, so line up other finance first. We have not found an official New Zealand rule that spells out how a dealer's commission must be disclosed, so ask for it in plain words and in writing.
How to compare properly
- Compare the total cost of credit and the annual interest rate together, not just the weekly payment.
- Look at fees such as establishment and early repayment fees, which must be reasonable.
- Check the cash price on the Consumer Information Notice matches the loan contract.
- Watch for add-ons such as mechanical breakdown insurance or tracking devices being financed in. Consumer NZ says these often are not good value.
- Get a competing offer before you visit the yard. Consumer NZ suggests shopping for the loan before choosing the car.
Questions to ask the dealer
- Which lender is this, and what is the interest rate they offered the dealer, if any?
- Does the dealer receive a fee or commission from the lender for this loan?
- What is the total I will repay, and what fees are in it?
- Can I take the contract home to read first?
Fair Finance carries no dealer markup. We look across a panel of lenders and refer you to one likely to give a fair rate, and our referral fee comes from the lender, never from a markup on your rate. Nobody can promise approval, and lenders decide case by case, but you can check your options with one soft credit check before you walk into a yard. Ready to go? Get your fair rate.
Walk in with a number to beat. Start with a soft credit check.
Sources
Common questions
Is dealer finance more expensive than other finance?
Not always, but it can be. Consumer NZ says a dealer who arranges your loan will likely charge a broker or dealer referral fee, so compare the total cost of credit against at least one other offer before you sign.
Do dealers have to tell me their commission?
We have not found an official New Zealand rule that sets out how dealer commission must be disclosed. The lender must give you a disclosure statement showing the rate, fees and total cost, so ask the dealer to state any fee or commission in writing.
Can I cancel dealer finance after signing?
You have five working days from disclosure to cancel the credit contract, longer if documents were emailed or posted. If you have already taken the car, you still have to pay the cash price, within 15 working days.
What is the best number to compare two finance offers?
The total cost of credit, which is everything you will pay on top of the car's price, shown in the disclosure statement. The weekly payment alone can hide a longer term or extra fees.
See your repayments, then get a fair rate.
One application, one soft credit check, no obligation. We match you to the lender most likely to give you a fair go.