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Warning on low interest rate car deals

Warning over low interest rate finance deals on new cars that have hidden costs at the end of the loan.

Nothing comes for nothing, they say, and that applies especially to attractive finance offers on new cars. Some can save you thousands of dollars while others have a lump sum at the end.

Experts have warned buyers to beware of low interest rate finance offers on new cars in end-of-year sales.

While some deals are sharp and can save you thousands of dollars, most of the December deals lock customers into a lump sum payment at the end of the life of the loan -- equivalent to more than half the original purchase price of the car.

For example, the Nissan Micra is available for just $49 per week with a 1 per cent interest rate, bringing the total drive-away price to $15,850.

But at the end of the three-year loan, the buyer is lumped with a bill for $8210, more than half the original purchase price.

The same lump sum, described in finance terms as a “balloon payment”, also appears in the fineprint of the Nissan Navara offer.

The Nissan ute can be had for $110 per week with a 1 per cent interest rate, bringing the total drive-away price to $35,991.

But at the end of the three-year loan, the buyer is lumped with a bill for $19,795 -- or 55 per cent of the purchase price.

Buyers need to read the fine print of special offers and make sure there are no hidden extra costs

Dealer finance experts say on average most residual or “balloon payments” are about 20 per cent of the purchase price, so buyers are not caught out “upside down” owing more than the car is worth at the end of the loan.

A spokesman for the National Roads and Motorists’ Association, Peter Khoury, said buyers need to read the fine print of special offers and make sure there are no hidden extra costs.

“One of the problems with a balloon payment is that a lot of people can’t afford it and then they have to take out another loan to pay that remaining portion,” said Mr Khoury.

In contrast, the current 0 per cent Toyota Camry offer is available without a lump sum payment at the end and can be carried over four years.

A $28,990 Toyota Camry costs $140 per week over four years but then the buyer owns the car outright, with no lump sum at the end.

A $29,990 Toyota Aurion V6 sedan costs $144 per week, with nothing left to pay at the end of the four-year loan.

“When it comes to financing a vehicle, if you are not confident you understand the terms and conditions, make sure you show someone who does,” said Mr Khoury.

“Otherwise buyers may not see the loopholes and commit to something they can’t afford. Always shop around and get more than one quote, and that applies to a quote for financing the vehicle.”

Dollar dazzlers

Nissan Micra manual

$15,850 drive-away
1 per cent finance offer
$49 per week over three years and a $8210 balloon payment

Nissan Pulsar auto

$22,507 drive-away
1 per cent finance offer
$67 per week over three years and a $12,095 balloon payment

Nissan Navara ute

$36,835 drive-away
1 per cent finance offer
$110 per week over three years and a $19,795 balloon payment

Toyota Camry

$28,990 drive-away
0 per cent finance offer
$140 per week over four years, no more to pay

Toyota Aurion V6

$29,990 drive-away
0 per cent finance offer
$144 per week over four years, no more to pay

Have you ever been caught be a lump sum payment at the end your financing period? Tell us about it in the comments below.