June 30, 2011
Nearing the end of your current loan deal, borrowing for the first time or keen to consolidate existing debt? Here's what you need to know.
1. Loan rates are steady
Since November, the official cash rate has remained steady at 4.75 percent, which is great news for those with personal and car loans. But if speculations are bang on, then we'll see at least one 25 basis point rise before the year is out.
2. Have a clean slate
Not all lenders will give you the green light for a loan if you have a history of poor credit. Others will agree to lend to you, but may offer higher rates of interest for the privilege. So if you're in the market for a loan clear any outstanding bills and establish a savings pattern to help prove that you'll be able to service a loan.
3. Limit your applications
While you might be tempted to put in multiple applications for a car loan or credit card to ensure you get the best deal, doing so can impact your credit rating - particularly if you're knocked back. Instead, find one great finance option and stick with it.
4. It pays to compare
In the same way that you'd shop around for the best price on a new car, shopping around for the best car loan can ultimately save you hundreds, if not thousands, of dollars. Using a financial comparison site will save you time otherwise spent trawling provider's websites and will likely save you money too.
5. Credit cards may be better
If you're borrowing a small amount, say $5000 or less, you may be better off opting for a credit card with a low rate of interest or one that has an interest-free period, rather than a personal loan. But make sure you can pay it off within the honeymoon period to avoid hefty revert rates.
6. Loans can be secured or unsecured
Have you ever wondered why some car loans are cheaper than personal loans? One explanation is that some car loans are secured to an asset - in this case the car. So should you default, the borrower can repossess the car to sell and reclaim the money you still owe.
7. It can cost less to borrow more
Sometimes the more you borrow the better the interest rate you'll be offered on a car loan. For instance, the best rate for a $25,000 new car loan may be 8.99 percent. But if you borrow an extra $5000 your best rate might be 30 basis points lower. So it may be worth your while to take the extra $5000 and put it towards your repayments.
8. You may not get the rate you see
If you apply for a low-interest car loan at a lender's advertised interest rate, it does not guarantee that that's the rate you'll be offered, because rates can change daily.
9. Consolidation could save you
If you have multiple debts, such as a credit card and a car loan, then combining them into one loan could you save you because the more you borrow, the lower the rate. Plus consolidated debt can be simpler to understand and keep track of, so you'll be able to concentrate on paying down one sum.
10. Early repayments could cost you
If you come into some money and are able to clear the debt sooner than planned, you might be hit with early exit penalties. Some lenders will not accept additional payments on your car loan either, so it's worth confirming before you sign up.
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