About time and well over due!
It’s coming – the ASIC clamp down on car yards using “Flex Commissions” to gouge clients. The new law will come into effect on 1st Sept 2018 but is being monitored by ASIC from September this year. It should be remembered that car yards may still charge whatever interest rates they like up until 2018.
Some banks have already announced they will set a maximum interest rate for car finance (reviewed monthly) and also set a maximum upfront Dealer/Broker fee that can be charged to consumers (again effective 2018).
This maximum interest rate and maximum upfront fee are still substantially higher than what you as a broker’s client should expect to pay. Many brokers don’t even charge a Dealer/Broker fee (we at Hunter Business Finance don’t) and will work hard to keep the interest rate well below the maximum limit set by the bank.
Finance brokers could choose to charge the maximum interest rate and maximum fee, but most don’t.
And why not?
- a). Brokers rely on repeat business and understand that gouging clients won’t encourage clients to return
- b). Brokers are governed by a number of industry authorities who monitor how brokers behave with considerable fines for misleading conduct
So if you can generally get your finance cheaper (manufacturers discount rates of 0% or 1.9% etc excluded) and the transaction handled by an industry accredited finance professional through a broker, why would you risk financing direct through a car yard?
What is Flex Commission?
Flex commission is the interest charged by a supplier (ie: car yard) above the rate the bank / lender requires.
The rate a bank / lender will require on a transaction will differ from category to category eg: a home owner / buyer who has full time employment and that employment is longer than 3 years will get a better rate than a renter with a short employment (under 12 months) and of course the age of the vehicle being purchased – new cars get better rates than older cars.
A home owner client with long term employment buying a new car for $45,000.00 over 60 months with a nil residual a lender will charge an interest rate of say 5% – repayment $849.21 – total interest paid $5,952.33.
A supplier (car yard) may charge the same client 12% making repayments $1,001.00 – total interest paid $15,060.00.
The flex commission the supplier gets is:
- $15,060.00 – total interest at 12%
- $ 5,952.33 – total interest the lender wanted 5%
- $ 9,107.67 – Flex Commission
Flex commission the dealer gets is above and beyond the normal income received by the dealer for the sale of the vehicle.
Posted: 28/08/2017 2:01:39 pm by Hunter Business Finance | with 0 comments