How to Pick the Best Car Loan For Me

Getting The Best Car Loan

To choose a car loan that's right for you, you need to consider a few key factors:

How to choose a car loan:

1. Know what you can afford for regular car loan repayments.
2. Chose the right car - write down what you need the car to do.
3. Choose the shortest loan term possible to get the type of car you need.
4. Know the total cost of your car loan.

How much can you afford?

To determine what you can afford, take all of your financial goals into account, including your other savings goals. You can calculate your potential weekly payments by using a car loan calculator.

With the car loan calculator, you can determine how much you are comfortable borrowing over the loan term that you select.

Choosing your car

Do you really need a brand new car? Cars depreciate fast, so buying a second-hand car that's reliable and well-cared for can be a great financial decision.

To choose your car, you need to know what it will be used for:

• Getting about the city
• Towing
• 4WD and off-road
• Passengers and children

Speaking to a car expert like your mechanic can help you to narrow down the best models and options within your budget.

Choose a car loan term

Choose a car loan term based on the repayments that you can afford. A shorter loan is always better.

You also need to consider your current employment - are you in a stable position? Are you likely to change employers during the loan term?

If you anticipate an increase in your income during the loan term, ensure that the lender allows you to make penalty-free additional repayments on the loan to reduce the balance.

If you think you might stay in your current job for two or three years, then select a loan term that matches this so that when you move on with your career your loan is fully paid off.

Know the total cost of your car loan

When you take out a car loan, there's a cost involved to borrow the money. This includes:

• Application fee
• Interest
• Account fees
• Early payout fees

To borrow $10,000 over three years, you might pay an application fee of $250, interest at 9.8%, and account fees of $4 per month.

The total cost of the car loan over a three-year term will be $13,334.

The same car loan over a five-year term has a total cost of $15,342. While you get lower regular car loan payments, there is a price for taking extra time to repay the loan.

Using the comparison rate, which includes the application and account fees, also helps you to compare the value of different loan options.

Shopping for the best car loan

The number one key to shopping for the best car loan is to separate arranging your car finance from the purchase of the car.

Doing two things at once is hard. Separate your car loan from your car purchase so you can concentrate on getting the best deal on both.

Getting a pre-approval after comparing different loan options will help you to choose a car loan that is cheaper and better fits with your goals. It also gives you a better bargaining position to knock down the price of the car. When you borrow less, you'll pay less in total for the cost of the loan too.

Types of car loans that might be suitable include:

• Secured Car Loan
  Best for buying cars that are less than six years old.
• Unsecured Car Loan
  Good when you want to have discretionary use of the funds and to buy an older car.
• Novated Lease
  If you have stable employment and your employer agrees to a salary sacrifice arrangement.
• Chattel Mortgage
  If you are using the car more than half of the time for business purposes.

What to watch out for

1. Balloon payments
   A balloon payment is a lump sum due at the end of the car loan - you have to pay it before you'll own the car. You'll need to include the balloon amount when you compare car loans.
2. Interest-free periods
   Interest-free sounds great, but you need to know what the interest rates will be once the interest-free period ends to accurately compare this type of car loan.
3. Using mortgage redraw to buy a car
   It makes sense to keep your debt all in one place, but redrawing on your mortgage to buy a car can be very expensive if you aren't disciplined to repay the car purchase price back within the minimum time possible.
   
   If you do redraw on your mortgage, set up a plan to pay back the amount you have withdrawn within the shortest timeframe possible.

How to find a great value car loan

• Use a car loan broker to compare quotes
• Save a deposit to put toward the car
• Do your research - if you have a poor credit rating you might need an alternate lender
• Check for early payout fees - you can easily refinance to a better loan if you need to later, or pay off the loan early if there's no early payment fee.

If you are ready to get some car loan quotes, now is a great time to find out what your car buying options are. Speak an experience lending manager who can help you to narrow down the best car loan by listening to what you need.