As car loans become a popular way to buy the car that you want or need, rather than making do with a model you can afford to pay cash for, banks and lenders are creating more and more options for you to choose from.
This means that with careful research, you can secure yourself a good deal, and a car loan that has the features that you want.
So how do you know what to look for?
A secured car loan will generally have a lower interest rate than a personal or unsecured loan. This is because the lender takes a security over your vehicle for the period of the loan term, which gives them the legal right to seize and sell your car to recover the loan money if you default on loan payments.
Because the lender then has a way to recover the money that they lend you, they are taking less of a risk by offering you the car loan. This means they’ll be happy to offer you a lower interest rate on your car loan.
A used car is more likely to have some faults or issues that could quickly reduce its value than a new car will. This means that lenders are less likely to take security over a used car and offer you that low interest rate you want.
You can still get a great deal on a used car, depending on the age and model of car that you choose. Find out more about how the make and model of your used car affects your rate here.
Your interest rate defines how much it will cost you to borrow the money you need, rather than paying the total sum upfront. With a lower interest rate, you’ll be getting your money for less.
When you compare interest rates of your car loan options, remember to think about the fees and penalties that may be associated with your loan, as these add to the cost of borrowing money too.
Even small regular fees can add up. For example, say you have a monthly administrative fee on your car loan of $4. This adds up to $48 over the year - while it may not seem like much, it’s better off in your pocket than the lenders.
Look for annual fees and any penalties for missing payments or making extra repayments too. You can use the ‘comparison rate’ of loans to get an idea of how the fees included will affect the total cost.
Depending on your income and financial situation, regular set payments may suit you well.
If your income does vary, or you expect additional income you might want to look for a loan that has the ability to make extra payments when you have spare cash.
Having the convenient option to pay down your loan, thereby reducing the interest you will be charged, and to redraw the extra payments if you have unexpected expenses is a feature that you may want too.
There’s usually fees for extra payments and for redrawing money paid into the loan, so if you do choose this feature, make sure you know exactly what the terms are. There could be a minimum amount that you can withdraw from the loan too.
Generally a fixed rate loan has less flexibility in the features, listed above, that you’ll be able to choose from. But it comes with one huge advantage, and that’s that you know exactly how much each repayment will be, and when the loan will end.
A variable loan means that your repayments could change over the loan term. That means you need some flexibility in your budget to allow for increased payments.
The advantage of a variable car loan is that you’ll get more of the loan features listed above, and if you are savvy with your finances, you’ll probably be able to pay down the loan faster and reduce the total interest you’ll pay.
The bigger up-front deposit you can provide toward your car, the smaller the amount of money that you’ll need to borrow. Paying a deposit also looks good to the lender, as it shows that you have a strong savings habit, and you’re more likely to make your loan payments on time.
Having a bigger deposit could mean you are offered a lower interest rate, so if you can wait a little longer and put the money together it’ll benefit you long term.
Now that you know what your options will be, you might want to start crunching some numbers to compare car loan options.
Using a car loan calculator you’ll be able to get a rough idea of what the financial commitment will be for the amount that you want to borrow to buy your next car.
Speaking to a car finance broker is also a good way to get a quote for your specific situation, and to find out which car loan options you could qualify for.
Once you have an idea of what your car loan options will be, and you’re ready to start an application, a car loan broker will take down all of your information and match you to the best possible loan from our selection of loan types across all of our lenders.
At this stage, you’ll need 100 points of ID, as well as proof of your income, and info on your current assets and liabilities. Don’t worry if you don’t have a squeaky clean credit history, there’s a good chance that we can still help you find a great loan option.
Need more info? Find out more about car loans here: