Vehicle & Car Loan Guide

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Whether you need transportation to work each day, a bigger vehicle for your growing family or have had a dream of owning a sports car since you were young, you may need to consider financing options for your vehicle.  

In this blog, we will cover the basics of vehicle financing so you know what to consider, where to get a loan, how to compare loans and providers and how to calculate repayments for maximum efficiency. By educating yourself, you’re much more likely to choose the financing plan that is right for you.

Factors to consider

Loan amount

It is crucial to not over-borrow. Before choosing a loan amount, work out how much you can afford for repayments each month and maintain that budget. This budget will determine which cars are within your price range.

Loan type

Fixed/variable – With a fixed interest rate, each of the repayments will be the same amount. With a variable rate loan, the amount you pay each period may fluctuate depending on market value.

Secured – With this type of loan, the car becomes security against the loan. If you default on your repayments, the lenders can repossess your vehicle. This is a low-risk loan for lenders (because they can sell the car to pay off the loan), therefore, it generally offers better interest rates.

Unsecured – In order to secure the loan, you need to prove to the lending institution that can meet the repayments. This is done by showing that you’ve previously repaid a loan or credit card or have a history of savings. 

Car type 

Different car loans are given on the basis of whether the vehicle is new or old. New car loans have a better interest rate because they are seen as lower risk (the resell value of a new car is higher). 

Preferred features

When you’ve narrowed down your car loan options, make sure you start looking at the fine print. Two important features to look for are:

No early exit penalty – The lender won’t penalise you for paying off your loan sooner.

Extra repayments – The lender gives you the ability to make extra repayments to your loan, which means you will pay less interest.

Checklist

Here is a list of the documentation you may need to support your car loan application. Make sure you have it on hand before speaking to a finance broker:

  • Identification;
  • Contact details;
  • Records of your credit history;
  • Proof of income; and,
  • Car details.

Where to get a loan

Broker/independent lender

A finance broker or independent lender is a good alternative to dealerships and banks, as they tend to be more customer orientated. They are able to sit down with you and take into consideration all factors pertaining to the loan, they can then come back and present you with a number of financial solutions from a variety of lenders. As a broker usually has access to a panel of lenders and products you may be more likely to end up with a financial solution tailored to your personal needs.

Bank

Banks are very large corporations that make profit from lending people money. As a result, it can be at the cost of the consumer. The terms and conditions of the loan can be good, but they don’t always have time to offer you a loan that is appropriate for your circumstances and unlike when you use a finance broker a bank will only present you with options available specifically through them

Dealership

Dealerships can provide buyers with a bad credit history, as they can use the unfortunate situation as leverage to charge very high interest rates. Be careful when considering a dealership loan and make sure you find out about any additional fees that you may incur. Speaking with a finance broker prior to going to a dealership may give you more bargaining power when it comes to buying your new car.

How to compare?

Before making a decision on a financing plan, it’s best to examine all options and compare them to find out which one is the best for you, which may not necessarily be the one with the lowest interest rate.

A lower interest rate is generally better, however there is more to a loan than just interest rate. Don’t jump into a loan with the best interest rate without doing a bit of investigating first. When comparing products, you also need to take into account:

  • Monthly account keeping  fees;
  • Lender, broker or dealer origination fees;
  • Early payout penalty; and,
  • Whether you meet lending criteria.

Remember, even with a great interest rate, hidden costs can end up costing more than with it would with a higher interest rate so it is important to look beyond the rate

Need more help?

If you’re ready to start comparing vehicle financing options and want some assistance, contact our team. We are dedicated to finding the most suitable financial solution for your car purchase. 

**The information provided here is general advice only and your personal circumstances have not been taken in to consideration during its preparation. You should seek independent advice before making any decisions relating to your personal finances. Finance availability is subject to applicant meeting lenders qualifying criteria, and all finance approvals are at the discretion of the lender.