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Finance establishment fees?!

Discussion in 'General Motorcycling Discussion' started by zaphius, Apr 2, 2016.

  1. Went to pull the trigger on a bike today. Haggled them down to the price I was happy with, which was 7.5k after trade in to be financed through them.

    Go to do the paperwork and the financed amount is 8.6k! Go through paperwork some more and turns out they want $1170 in establishment fees?! 400 to the finance company, and then $770 to the dealer!!!!

    Suffice to say I wouldn't sign and will pull out of the purchase.

    Has anyone had similar experiences, and is this normal for dealer finance? I don't want to owe 8.5k on a bike that is only worth 7.5k if I flip it, especially since interest is also 10%p.a.
  2. Yep always read the fineprint. Did they try to load you up with insurance too? That's a classic money grab as they get mega commission on the policies (learnt the hard way myself).
  3. Best to arrange your own finance if you can, there will be fees and charges but you can avoid the middle man that way.
    • Agree Agree x 3
  4. those fees are how the dealer makes income from the finance transaction. rates on bike finance are pretty high due to so few lenders willing to finance bikes due to the higher risk profile. I have worked in motor vehicle finance for many years so feel free to ask me any questions on the forum or via pm. the finance company fee is probably not negotiable but the fee to the dealer may have some flexibility. see if you can get it knocked down a bit. both those fees are fairly standard on all vehicle loans. check to see if there are also monthly account keeping fees or early payout penalties. virtually every personal loan that you apply for be it from a bank, credit union or finance company has these establishment and other fees so I doubt you will avoid them completely unless you want to put it on your credit card and pay 20% interest.

    I hear what you say BerekBerek about insurance products, I guess you don't know their true value until you need to make a claim. insurance is a bit like seat belts in a car, do they work? who knows but when you have a situation and need them to do their thing you hope that they are up to the task.
    • Informative Informative x 1
  5. just think of it as an official bribe, like all the other bank and government fees we have to pay :p
  6. I knew the dealer makes good coin from finance, but my understanding was they got the kickback from the financier, hence justifying the high interest rates (relative to other forms of lending). To whack 15% on in set up fees and bundle into the loan on which you then pay 10% pa, compounding the effect, is ridiculous. My broker for other forms of finance, insurance etc always gets their clip from the lender.

    And in terms of "higher risk for motorcycles", it is a condition of finance to take full comp insurance, so no additional default risk due to higher chance of write off unless loan amount is greater than bike value, which is exactly what happens when you inflate the loan amount with bogus charges.
  7. not bogus, welcome to the real world...

    you are gonna be sooo pissed off when you try to get a mortgage :)
    • Agree Agree x 5
    • Like Like x 1
    • Funny Funny x 1
  8. the bogus charges are standard in the motor vehicle finance industry so not really bogus though as a consumer you are correct to ask why they are there. yes there is some commission paid to the dealer by the financier for them as an incentive to fund the purchase through that lender.

    go to your bank, you know, the trustworthy lenders who make more profit than nearly any other business in the country, and see what they charge want to charge you on a bike loan. you'd be a lot better off doing a drawdown on your home loan as it would be cheaper.

    the 'higher risk for motorcycles' is a reference to the quality of loans on motorcycles. unfortunately loans on bikes perform poorly from a lenders perspective, meaning they have a higher incidence of being paid late, being repossessed, being written off uninsured etc yes the loans have to be insured but after the second year of the loan you'd be surprised by how many bikes/cars/trucks don't get insured immediately when it's renewal time.

    mate that is reality when you borrow money. the alternative is to save the cash and not borrow.
    • Agree Agree x 1
  9. or get a mortgage, ie a 5% credit line...

    (sure, it might cost you $100K upfront to establish it, but after that, easy ;) )
  10. #10 zaphius, Apr 3, 2016
    Last edited by a moderator: Apr 22, 2016
    Yep, already got one of those, and a car loan. And if they'd tried 15% of principal in fees there I'd be pissed too!

    Let's continue on the home loan theme. Dealer is already making profit on the bike (it's second hand and I know how badly they stung me on trade in). This fee is like the real estate agent making 10% off the buyer (although admittedly agents don't arrange finance) while also taking their clip from the seller.

    I'm ok with reasonable establishment fees, and expected the 400 odd from the lender. It's the 770 direct to dealer from my pocket, which was "non-negotiable", which irks me.
  11. #11 chilliman64, Apr 3, 2016
    Last edited by a moderator: Apr 22, 2016
    zaphiuszaphius if you want to reduce your interest content you can do a few things:
    set your loan for the shortest term you think you can pay it off, ie don't take out a 60mth contract if you think you can pay it off in 2 or 3 years - consumer loans in Australia have the interest calculated on the daily balance so the quicker you pay it off the less interest you will pay;
    set your loan up to be paid according to your income cycle, ie if you receive your wage weekly then make weekly payments - divide the monthly pmt by 4 and set up Bpay out of your bank account - that way you will be reducing the balance each week instead of at the end of the month, also by dividing by 4 you will actually make 13 monthly pmts in a year instead of 12 so you will pay it off a bit quicker and save some interest to boot; and,
    try not to have a balloon or lump sum pmt at the end of the loan, it will make your pmts a bit lower but you will pay more interest in the long run and at the end of the loan you still have to pay the balloon amount.

    best of luck with whatever you decide.

    btw - what bike are you buying?
    • Informative Informative x 1
  12. CB400, and it was a nice one with less than 10k km on the clock. I do appreciate the advice, but I'm pretty good with numbers (engineer with an MBA) and know exactly what I'm getting into wrt interest and repayment schedules. My issue is not with the interest rates or compounding periods. Yes I can find other ways to pay, and will, but with the low principal, low depreciation and short (relative) time I expected to keep the bike financed, I was not fussed by the expected costs over my expected life of the loan. I had also confirmed low early exit fees (~$150) in my discussions with the dealer. What they never mentioned until I'd wasted a lot of time with them was the high cost of entry to the loan.
    • Like Like x 1
  13. Yeah as a general rule I buy the product direct wherever possible. This means I'll buy a bike from a bike dealer, but go straight to the insurer for insurance and to the bank if I need finance, unless of course there's a clear benefit going with an intermediary (eg a broker who can access better rates or more tailored products).

    When we bought our current car from a dealership, we of course got the usual merry-go-round of consultants trying to sell us add-ons. The best bit was the finance guy trying to sign us up for a car loan when we had the cash to buy it outright. To be fair, he had a pretty good spiel about how we would be better off financing - I do a lot of work with financial products and I still had to think for a second to unpack the bullshit. I hate to think how many people would been suckered in to signing up for loans that they don't need.
    • Agree Agree x 1
  14. can't redraw on mortgage yet? is about the cheapest rates you'll get (except credit card 0% transfers)
  15. Sounds pretty steep. Next they'll try to ping you for "rust proofing" and "paint protection".(n)
    • Funny Funny x 1
  16. This all seems to be getting a bit speculative and turning into a who, what, when, where, and why of financing.

    To reframe my original question:

    To those who have financed through a dealer, I'd like to know what establishment fees and charges were bundled into your finance please.
    • Funny Funny x 1
  17. Good in theory mate, but most people won't smash money back into it and plod along making low payments on mortgage and the low interest is eventually offset by the term of the loan.
    ie: you end up paying 25grand for a 10 grand bike. (Example for point)
    Banks just luv people just banging it all on the home loan,it's their best money spinner.
    • Informative Informative x 1
  18. So the better option is to make repayments on a separate bike loan? If you can afford the repayments on the personal loan, you can apply the same amount to your mortgage and achieve the same result without paying the extra interest. Taking out an additional loan as a form of repayment discipline is a cop out - it's just another way spin money to the banks.
    • Agree Agree x 3
  19. I got a loan to pay 50% of the ninja. I used a local finance company. The banks wouldn't touch me thanks to using flexirent once and everytime they want to offer you money, they hit your credit history. So I had 15 flexirent hits in 2yrs. Has ruined my credit history. Local finance only charged me $300 establishment fee.
  20. a separate bike loan is better for you. if you put it on your mortgage you should really increase the amount you pay on your home loan each month otherwise if you just keep making the same monthly payments as before the bike was added on you will pay more interest and just take longer to pay your house off.