What is a Factory Bonus?

Are you considering buying a new car? You’re probably visiting car dealerships and wondering how to get the best deal. This can be confusing with different terms used, which you may not understand.

What is a factory bonus?

If a dealership has an excess of existing stock, or they are keen to move cars quickly to house new models being released, it may be a good time to search out a ‘factory bonus’.

Factory bonuses are seen as incentives provided to car dealerships by the manufacturer of the car to help sell vehicles.

Factory bonuses are often regional, so it’s worth shopping about to find out which car dealerships are offering what.

There are a number of ways these ‘bonuses’ can be offered:

• Reduction in the retail price: this is usually the most direct saving to you and the reduced overall price could help if you are applying for a car loan.
• Cashback offer: this is a good way to get a reduction on the overall amount you will spend on your vehicle.
• Third party deals: there are often some great deals you can get which include things like store credit or even free fuel for a limited amount of time – another indirect saving for you.

How to get the best deal

Be wary! Don’t rush into things even if it’s tempting to see a factory bonus at car dealerships and want to go for it straight away.

If a factory bonus is being offered, it generally means that car dealerships want to shift stock or move cars on – therefore it’s usually a pretty good chance to negotiate a lower price on the car that you want.

Ask for help. At Positive Lending Solutions, we have decades of experience dealing with car loans and car dealerships, and we can help you get the best car loan for your circumstances. If you’re not completely comfortable talking to the dealership, we’re on hand to offer help wherever we can.

Understanding key terms

It can be daunting visiting car dealerships—especially when the car dealers use terms or phrases that you’re not familiar with.

Having a bit of background information is really useful—you’ll feel less intimidated and you’ll also understand what is being referred to.

Here are some of the terms you might hear in car dealerships:

Actual cash value (ACV)

This is the cost of replacing property lost—in the instance that your car was stolen or written off in an accident. The ACV is equal to the cost for a similar vehicle based on current market prices.

Amount financed

This refers to the proportion of the purchase price which has been financed. It is not just the cost of the car but also includes essentials such as warranties and insurance.

Annual percentage rate (APR)

This is the average compound interest rate over the lifetime of the loan. Lenders have to disclose the APR as it is used by borrowers to compare loans.

Dealer holdback

This doesn’t necessarily concern you buying the vehicle but it’s the refund the manufacturer gives to the dealer after a vehicle has been sold. It’s usually a small percentage of the MSRP.

Deductible

This is the total of the expenses which will be covered by the insured.

Deposit

This is an important one—and something that you should always request to be completely refundable if your deal doesn’t go through. A deposit is a sum of money that holds a deal until the paperwork is complete.

Down payment

Similarly, a down payment is an upfront cash payment that you as the buyer will make to bring down the amount borrowed to purchase your car. The down payment helps to protect the lender in case you default on the loan.

Usually, down payments are about 20 per cent of the overall price of the car, but this depends greatly on which type of car loan you are getting and your available budget.

Fuel economy

The number of litres of fuel a vehicle uses per 100 kilometres travelled—this is important to consider when it comes to the future running costs of your car.

Line of credit

An approved loan amount that has not yet been used.

Manufacturer's suggested retail price (MSRP)

This is the retail price that the manufacturer suggests to car dealerships for selling the car.

Positive equity

This occurs when the vehicle's market value is greater than the amount you (as the borrower) owe on it.

Residual value

The estimated value of the vehicle at the end of the lease.

Trade-in value

The amount a dealership credits you for the used vehicle you provide as partial payment for another vehicle

Trading down

Buying a less expensive vehicle than the one currently owned. The opposite of this is when you decide to buy a more expensive vehicle than you currently have – referred to as trading up.

Wear and use

Normal depreciation of a vehicle under average daily use. This is inevitable but there are things you can do to prevent extreme damage, and it’s important to always keep your vehicle in a good condition.

If you do continue to feel out of your depth at car dealerships, don’t be afraid to ask for help—we are on hand to help make the loan process as positive as possible for you and can help explain things and answer questions. We can help you navigate everything from a factory bonus to interest rates.

Positive Lending Solutions can help you through the loan process and ensure that you get a good deal.