Australia’s appetite for shiny new wheels is shovelling millions of hard-earned dollars straight into the pockets of our largest financial institutions, with more than $8 billion borrowed by Australians to buy new cars in 2018 alone.
According to a report by finder.com.au, the interest generated on those loans will exceed $500m, lining the pockets of finance companies and leaving Australian households worse off.
Data provided by the Australian Bureau of Statistics (ABS) reveals that about 20 per cent of the 1.1 million cars sold last year were purchased using car loans - that’s one finance deal signed every 2.5 minutes - and Australia’s love affair with loans shows no signs of abating.
The average price of a new car bought using a loan is $36,139 and the average finance interest rate is 6.3 per cent, says the report. At that rate, an entry-level BMW 3 Series ($57,300) will have cost the owner $9,500 in interest at the completion of a five-year loan. That’s worth considering when you are budgeting for a new car.
Record loan levels and soaring interest payments would appear to suggest a healthy automotive market, but while certain segments - including mid-size SUVs - continue to flourish, the overall local market is down 3.0 per cent at the close of 2018.
Alarmingly, though, data released by financial market analyst Moody’s shows that Australians are failing to meet car loan payments at a rate that exceeded delinquencies during the global financial crisis earlier this decade.
Sliding sales and defaulting loan repayments paints a grim picture of the automotive landscape and underlying financial stability... but what’s causing it?
Part of the problem is consumer impatience and impulsive buyer behaviour. Where consumers might have previously saved up and paid for significant purchases with cash, Australians are increasingly depending on the convenience of credit.
Australia’s credit card debt is a revealing barometer, too, it currently sits at about the $37b mark, and is being fuelled by consumers wanting retail gratification right now.
Still thinking about that nice new premium SUV or dual-cab? Here's our advice...
- Even if you can’t cover the full cost of a new vehicle, taking a little more time to save the biggest deposit you can reduce the size and quantity of your repayments -and that could be the difference between completing the loan or having to default. It’ll mean waiting longer for delivery, but it will reduce your financial stress.
- Before you sign up for a finance deal, make sure you do the homework. and be certain you know exactly how much the full agreement is going to cost you. It’s also worth factoring in a worst-case scenario just in case your financial situation changes.
- Some more unscrupulous dealerships and retailers may make it seem like you have no option but to use the finance package that they offer, but that’s simply not the case. Shop around for the best deal and look beyond the interest rate.
For many new car buyers, finance can be the best solution but, as always, resist the temptation to act hastily, arm yourself with information, and make informed decisions about what is likely to be one of life’s biggest investments.