Farming: Buying a tractor: What’s the best deal? It’s not what you think
23 Jan 2020
Want to buy a new tractor? You shouldn’t pay cash. 15% deposit and 12 equal payments spread over a year interest-free, is the way to go. One of our farmer clients was given this answer by his tractor salesman when asked, “What’s the best deal I can get, and I’ve got cash”.
Finance of one kind or another seems to rule the roost in a number of retail industries. We suspect salespeople get commissions of some sort for selling the finance contract. The biggest income earner for some industries is not from the markup on the sale of the product but from interest earned from the finance contracts arranged for people who can’t pay cash.
We tried to work out how the tractor salespeople are making their money in the example above. They wouldn’t give a discount for cash, as we guess they didn’t want a cash sale. They would rather get the cash from the finance company plus the commission for selling the finance contract.
How then does the finance company make its money from selling the financing deal in the example above? The contract is only interest-free for the first year and most people will not pay it off after a year. They will need the finance to go on for another year or two before they pay it off. They will pay interest at 12% per annum or so for the second and third year.
That’s how the finance company make its money and pays the salesperson a commission at the same time.
Retail is not what it used to be.
Be careful out there.
Keep asking great questions …