Understanding Imported Car Finance Interest Rates
Written by Phillip Gruppelaar
Have you ever wondered why Imported Car Finance or Grey Import Finance is often more expensive?
We firstly need to understand that Financiers look at Imported Vehicles from Japan differently than they do from Europe or America.
Japanese Imports historically are high performance vehicle’s (e.g. Nissan Silvia or Mitsubishi Lancer Evolution), that are predominantly (but not exclusively) sort by a younger borrower. In recent times the SUV style vehicle has become more popular (e.g. Nissan El-Grand).
An important point to remember with Imported Vehicle Finance is that the funder market is
relatively small. Lenders in general have limited funding available and hence, they do not want to take risks. In many cases an applicant will be approved for $25,000 for a mainstream vehicle (e.g. Toyota Corolla, this does not mean you will get approved for Imported Car Finance.
ANZ, Commonwealth, Westpac, National Bank, Esanda, Macquarie Bank, People’s Choice Credit Union to name a few do not finance Imported Vehicles. They will lend as a personal loan if you qualify.
European and American imports are predominantly higher value items (e.g. Ferrari 360 or Dodge Ram) and/or “classic” cars (e.g. 1965 Ford Mustang), that are sort after by a more mature and affluent applicant.
For the youthful borrower, who has little or no finance credit history, approval is going to be a problem. The thought of what interest rate they will pay cannot be taken into account. If they want a low interest rate, they need to be buying a non-import motor vehicle.
So why is this? It’s simple, main stream lenders will not fund these vehicles, for various reasons including;
1. The style of applicant is at the high risk end for payment default.
2. Insurance is expensive, many chose not to reinsure at renewal time, which means if the vehicle is written off or stolen, the financier will struggle to recover outstanding debt.
3. The resale value of the vehicles in many cases is very poor, meaning any vehicle recovered by the financier usually ends up being a large loss.
4. Car Yards have provided false information on vehicles financed, leaving a bad taste in many financier’s mouths.
5. GE Automotive Finance, Australia’s biggest provider of Imported Vehicle Finance left the market on 28/02/2014.
So what are the options for the Japanese Imported Car Finance Applicant?
1. You can get a personal loan, main stream banks currently charge around 14.5% for these. The problem is the banks have no security, therefore approval is often difficult.
2. Find a specialist broker like Harley Finance who has access to multiple lenders for imported vehicles.
3. Be prepared to pay a deposit, this reduces lender risk, which means approval is easier and interest rates may be better.
4. Want a cheap interest rate, don’t buy a Japanese Imported car.
If you are looking at a European Imported Vehicle or American Imported Vehicle approval for Imported Vehicle Finance would be considered easier and cheaper.
To ensure you receive good interest rates you will need;
1. Proof that the purchase is readily affordable.
2. Have a sound credit history.
3. Preferably be an owner of property (mortgaged home or investment property included)
4. Be a vehicle that the funder can readily identify and value.
So if you want a low interest rate, don’t buy a Japanese Import. If you genuinely want a Japanese Import, you need to accept you are going to pay a little bit more interest.