How Much Will It Cost To Finance A Car?

Find out the costs of car loan financing here.

When a bank approves car finance, they'll give you a stack of documents with the terms & conditions, and fees & charges of your loan.

To simplify your car finance, here are the main costs that you need to be aware of when you sign a car finance contract.

Car Finance Establishment Fee

This is a one-off fee covering the administrative costs to set up your car finance. The establishment fee varies depending on the lender you select, and might be waived with some lenders when you purchase a vehicle that has a 7+ greenhouse rating and a 5 star ANCAP safety rating.

Some lenders may charge a low establishment fee, and then a regular loan service fee will be charged to cover the administrative costs of your car finance. Other lenders may charge a larger establishment fee but have no loan service fee.

Loan Service Fee

Your monthly account fee is usually between $5 and $15, depending on the type of car finance that you've selected.

Car Finance Interest

Interest is a percentage of the remaining balance of the loan, charged to your loan account on a monthly basis.

It's calculated based on the perceived risk by the lender that you'll pay the loan on time and in full. You can calculate how interest rates affect your repayments using a car loan calculator.

Optional Car Finance Costs

Your optional car loan costs can include things like:

• Loan Protection Insurance:

  The main advantage of loan protection insurance is that if you're out of work and can't meet your repayments, your insurance will kick in and your loan can be paid out. You'll avoid the detriment of a default on your car finance, and you can keep your car at this crucial time.
  
  If you'd like to minimise your risk by adding loan protection insurance to your car finance, mention this to your lending manager when you make your car finance application.
  
  

• GAP Insurance:

  Guaranteed Auto Protection (GAP) insurance is a type of optional insurance that will pay out the difference between the value of the car and your remaining loan balance should your car be written off, damaged or stolen.
  Make sure that you understand how this is affecting your loan as if the premium is added to the car finance it may increase interest payments. You might be able to avoid this by paying the premium separately - speak to your lending manager about how the GAP insurance payments are made.
  
  

• Extended Warranties

  An extended warranty will cover the costs of expensive electrical or mechanical repairs that don't fall under the manufacturer's warranty. If you decide to take out an extended warranty, make sure that you understand the extra cover that it provides and that it is worthwhile for the car that you've purchased.

Extra Car Finance Repayment Fee

Lenders may charge you a fee if you make car loan repayments ahead of schedule.

Early Payout Fee

Some lenders will charge you a fee for early repayment of your car finance. This can include a penalty fee as well as break costs. The amount varies from lender to lender, and you'll want to make sure that the fees you pay are less than the interest you would pay if you completed the car finance term.

Some lenders that offer car finance products without an early payment fee include:

• Beyond Bank
• CUA
• BankWest
• Gateway CU
• IMB
• Westpac

Of course, there are terms and conditions that apply. If early repayment is a feature that's important to you, ask about your options for a low or no early repayment fee loan.

Negative Equity Trade-In

If you're trading in your existing car, and it's on car loan financing, you may find that the trade-in value won't pay out the car loan in full. This means the amount owing on your car will be added to your new car loan.

One option to avoid this might be to sell your car privately to pay out your car loan. Here's a guide on how you can do this.

Car Finance Residual Payment

Choosing a residual or balloon payment at the end of your car finance term reduces your repayments during the loan.

It does mean that when you reach the end of the term that if you want to keep the car, you'll have to pay a lump sum fee or refinance the amount of the residual value.

Opportunity Cost

Opportunity costs refer to the financial opportunities that you give up when you decide to spend your money in one particular way rather than other ways.

For example, when you commit to making regular repayments on car finance, this may mean that you can't increase your savings as quickly, pay down other debt, or make other purchases.

It's worth considering as you may decide to borrow a little less to buy a car to fulfil your needs.

What next?

Now that you're aware of all the costs that could be applied to your car finance, you'll have a better idea of which extra options you might choose.

If you're ready to get a quote for car finance, start your quick quote process now.

If you're still not totally sure, then reading about the experience of some of our customers could help you see what others are doing for their car loan financing.