Car Loan Finance: Beware the Add-Ons

Do you want fries with that? The question is a classic example of upselling that has earned Maccas a place in the vernacular. But while being asked if you want hot chips with a burger isn’t surprising, you might be caught unawares if the same marketing push to spend more came when arranging a car loan.

For most of us, after accommodation, transport is our biggest expenditure. Cars cost big bucks, and car loans cost even more, once you factor in the interest repayments. So to be pushed into spending even more, through add-ons such as insurance, is a super-sized deal.

Because of this, the Commerce Commission has just published a report into the motor vehicle financing sector. And it reveals the practice of consumers being sold finance add-ons they do not fully understand and, sometimes, which are not suitable for them.

What was the car loan report about?

The Commission’s aim was to look at the motor vehicle financing sector, and to identify business practices that have the potential to cause harm to consumers. Primarily, the report identified four add-on products that are commonly sold alongside regular car finance:

Mechanical Breakdown Insurance (MBI)

Insurance cover for an unforeseen mechanical or electrical fault with the vehicle.

Guaranteed Asset Protection (GAP) insurance

In the event you write your car off in an accident, this insurance covers any difference between your insurance payout and the amount of finance left owing on the vehicle.

Credit Contract Indemnity insurance (CCI)/ Payment Protection Insurance (PPI)

This type of insurance covers you in case you are unable to make loan repayments for reasons including: sickness, hospitalisation, accident, redundancy, bankruptcy or death.

Repayment waiver

This cover waives your loan repayments in the event that:

• You are unable to make repayments due to: sickness, hospitalisation, accident, redundancy, bankruptcy or death
• There is any difference between your insurance payout and the amount of finance left owing on the vehicle

What does the car loan report say?

Although the Commerce Commission didn’t discover any shady goings-on, it does say that some consumers report that they either did not understand the add-on they purchased, or were not aware that they had purchased an add-on at all.

Some consumers thought that the insurance add-ons were mandatory. And there were also concerns about the suitability of certain add-ons being sold, with some customers not even being eligible to make claims on the insurance they’d been sold.

The report also highlights that while loan companies organise a customer’s car finance and judge whether or not they can afford repayments, it’s left to car dealers to push the add-on products in their showrooms. And because dealers can earn a commission for each add-on they sell, they might “prioritise selling add-ons over adequately assessing suitability for the consumer”. Basically, sell you stuff you don’t need.

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NZ 25- to 29-year-old Driver

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See here for our ratings methodology. The table above is an abridged version of our research. For the full results of our 2021 Car Insurance Ratings and Award, click here. View disclosures.

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So for consumers, the old adage buyer beware remains as true as ever. Before signing on the dotted line, make sure you know exactly what you’re buying and whether the product is the right one for you. Because if you’ve ever seen what happens to Morgan Spurlock in his documentary Super Size Me, you’ll know that blithely accepting every upsell pushed at you doesn’t end well.