Car Finance Deal - is this too good to be true?

finbar5

We are in the process of buying a new car and will be paying by cash/trade in value of our current car.  However, the dealer has suggested we take out finance through their provider, make one month's payment (including interest of course) and then cancel the agreement, paying off the balance in full.  If we do this then they will discount the price of the vehicle by just over £1,000.  This is tempting, but caution says if it sounds too good to be true then it usually is.
Has anyone had experience of this type of deal, did it work out ok.  I think Consumer law now offers protection and providers cannot charge penalty fees for early repayment but I'm not too sure about this.
Would be interested in feedback.
Thanks

Penguin_

Yes, dealers get commission when they sell financial products. Some give money off the car & others will offer free servicing deals. 

I have heard people pay it off after a week or so but dealers like one month to be paid so that they will definitely get their commission. 

user1977

Seems a bit odd that they don't get their commission clawed back if that happens.

Penguin_

user1977 said:

Seems a bit odd that they don't get their commission clawed back if that happens.

That's why they like the customer to wait before paying it off.

TELLIT01

Read the credit agreement very, very carefully before agreeing.  Ask the dealership to put in writing that there will be no fees involved if the credit agreement is paid off early.

RichardD1970

I have done similar, used their finance for a better price and then paid it off with credit card, then bounced it to a 0% card.

Didn't wait a month though, as I did it off my own bat. 

Just watch out for any early payment fees which according to MoneyExpert is usually 1 or 2 months interest. (I did mine within the 14 days cooling off period so it wasn't an issue). https://www.moneyexpert.com/car-finance/paying-off-car-finance-early/

Brie

I was offered finance when we purchased a car but the dealership's "finance specialist" couldn't tell me what APR meant and in fact said that it wasn't relevant to a car loan.  Nothing extra was being offered so I put the whole thing on a 0 % card.

neilmcl

This is completely normal and an often used tactic by customers to get a better deal. It's nothing to do with commissions but simply incentives given by both the finance providers and manufacturer's to encourage new car sales via finance. When you take out finance you can settle at any time and within 14 days can cancel/withdraw from the finance altogether without penalty, albeit with a tiny bit of interest and of course with the car to be paid off in cash.

It's pretty much unheard of that the discounts/incentives will be clawed back, certainly not by the finance provider, but in any case it's always a good idea to check any paperwork to make sure there's no clauses in there that allows the dealer to clawback any discount. Ninety nine times out of a hundred there won't be.

neilmcl

TELLIT01 said:

Read the credit agreement very, very carefully before agreeing.  Ask the dealership to put in writing that there will be no fees involved if the credit agreement is paid off early.

No need to do this. If there's nothing in the original contract to say that they can then they won't be able to.

bazzyb

If you do this, then use your right to withdraw within the first 14 days rather than cancelling after a later date.  The reason the salesperson advises you to make a payment or two before cancelling is to protect their commission.

cx6

I have done this with VW and yes, saved £1000