People get a shock when a cheap little EV comes back with an effective rate up near 18 or 19%, when a much dearer car on the same terms shows 9%. It looks wrong. It usually is not, and here is the reason.
Fixed fees, small loan
Establishment fees, management fees and broker margin are mostly fixed dollar amounts. They do not shrink just because the car is cheap. So on a $60,000 car those fees are a small slice of the loan, but on a $20,000 car they are a big slice, and the effective interest rate has to be higher to reflect it.
Same fees, much smaller loan, so a much higher rate as a percentage.
A real example
We have analysed cheap-EV quotes where the effective rate came out around 19%. Nothing dodgy was happening with the finance rate itself, the fees were simply a large proportion of a small amount financed.
Does it mean it is a rip-off?
Not necessarily. A high percentage on a small loan can still be a small number of dollars, and the tax and GST savings might still make it worthwhile. The percentage alone can mislead you in both directions.
The honest way to judge a cheap car is to look at the actual dollars: compare the true net cost of leasing it against buying it outright or with a car loan. If leasing still comes out ahead in dollars, the scary-looking percentage does not matter. If it does not, you have your answer.