Despite the availability of financing options, so-called cash buying is still a stubborn competitor. According to TD Financing Services, as many as 50 per cent of car buyers are paying with cash.
TD points out it’s not really cash, they’re using. It’s some form of line of credit: a home equity line of credit (HELOC); a secured line (SLOC); or an unsecured line (ULOC).
And that, TD says, can be an expensive way to buy a car. Rates for an HELOC, for example, are prime plus .75 per cent.
Even so, these rates are usually reserved only for a select few customers. The average rate on most LOCs is often significantly higher, the bank says.
“I heard a dealer once say to a cash customer ‘What’s the price on your cash?’ ” says Andrew Ojamae of TD Financing Services.
When it comes to aftermarket sales, the consequences of cash buying are clear, the bank says.
TD is doing something about this. It’s relaunched its variable rate product, Cash Converter. The rate is 4.99 per cent or prime plus 1.99.
“We feel that there is a real psychological benefit to the rate being at five per cent and that it is prime plus 1.99,” he says.
“The product, he says, offers the consumer some “insulation” against future volatility that isn’t offered in other products.
TD advises business managers to emphasize the following when comparing TD’s variable product and lines of credit.
• Using the TD product leaves ULOC and HELOC available for emergency situations, which is why they were opened in the first place.
• HELOCs must be paid in full should the property they are a charge against is sold.
• In the event of a default, the entire ULOC or HELOC become payable.
• Unlike lines of credit, payments occur on a regular principal-reduction basis as opposed to LOCs, where payments often cover interest or three per cent of the outstanding balance. As a result, the principal may never be paid off.
• Rate volatility is reduced as payments don’t fluctuate unless the prime rate changes significantly.