Getting a car loan 

Looking for a new car can be exciting and a little overwhelming at the same time. You know that you’ll soon be looking sharp and driving safe in a new car, but you also need to avoid the lemons and sort out finance. Here’s what you should know so you have less to stress about.

Know your car budget

Are you looking for a car to last you a long time, or a smaller run around car you’ll only keep for a few years? This could influence how much you’re willing to spend on a certain vehicle.

Importantly, you need to know what you can actually afford. Take into account your savings, debt and income. This will help determine how much finance you’re eligible for and what you can afford in monthly repayments.

Knowing how much you can afford when you’re looking for a new car is like having a card up your sleeve. It means you’ll be less tempted to spend more on a car than you can afford and more confident to barter on price.

Getting finance from a car dealer

Car dealerships often have finance options available for people who buy cars from them and can appear to have lower repayments than other financial providers. Car yards seem like a one stop shop, but it’s important to not get wrapped up in the moment and make hasty decisions that could cost you in the long term.

Here’s what you should consider before taking finance at a car dealership:

Different car, different interest rate 

Getting finance from the car dealer you’re buying from essentially puts the power in their hands. Sometimes, different makes and models have different interest rates associated with them. Or different rates might apply to people with a different credit history and earning potential. So if you’re not spending a fortune on a car or earn a certain amount, you might find yourself on a higher interest rate than if you spent more or earnt more.

Paying off your loan early might not be possible 

Although you might be on a low interest rate, you could find yourself locked into a loan for a certain amount of time without the option to pay it off sooner or make extra repayments. Keep this in mind, as the sooner you pay off your car loan, the sooner you can think about that holiday. Also remember that paying a loan off sooner than the loan term could result in fees you didn’t account for.

Balloon payments 

Sometimes, a car dealer will give you a portion of your loan interest free which results in lower repayments. Sounds great, right? Except that portion of the price is owed at the end of the loan term in one payment – a balloon payment.

This means that once you finish paying your monthly repayments, you could still owe thousands of dollars in one payment at the end. If you haven’t been saving that amount in addition to your repayments and can’t pay the balloon payment, then you may face extra fees and have to finance that amount at a higher rate.

Being prepared with a secured car loan

Personal loans from a financial provider - like a bank - can make you feel more confident when you go to buy a car. Unlike the car dealership - whose car sale depends on your ability to actually buy the car - another financial provider doesn’t have another investment in the deal.

Other financial providers often have higher interest rates than what will be offered by the car dealer, but you won’t be landed with that balloon payment at the end. You can use your car as security on your loan to reduce the interest rate and even though the interest rate might be higher, there are a bunch of other benefits that could make it a better option for you.

Negotiate a better price

Negotiate a better price on a vehicle by having finance sorted before you walk in to a car yard, knowing you can pay the full amount then and there for the car. When getting finance from a dealer, the car price could be stuck once they offer you a low rate and they could be less likely to give you a better price.

Knowing how much you have to spend will also help prevent you from spending more than you can afford and putting a strain on your financial situation.

Knowing exactly what your car loan repayments will be

You can have greater peace of mind with a fixed interest rate on your personal car loan, by knowing exactly what your repayments will be and that they won’t change. A fixed interest rate will stay the same throughout the time of your loan, so your repayments will stay the same too.

Making extra repayments

When you come into spare cash to make extra repayments or find that you can make larger regular payments, then you could own your car outright and find yourself in a better financial situation sooner.

It’s important to remember though that if you pay off your loan within the first two years or so, you might need to pay an early repayment fee.

This differs for different loans and providers. However, some charge only a couple of hundred dollars, which won’t offset the benefits of repaying early.

Be prepared and explore your options

Going into a car yard and finding your new car comes with joys and challenges. Being prepared and confident before you start looking for a new car can put you in a better position in the long run. Explore your options before you get in the driver’s seat so you know you’re making the best financial move for you.

Looking for a personal loan? 

Things you should know 

The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48123123124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.