What it is and how to avoid it
The number of fees and penalties attached to car loans may well give rise to a new phenomena ‘car loan rage’, a syndrome where normally placid people see red when reading their car loan statements. In the most severe of cases, steam emanating from the ears is clearly visible.
Right from the beginning, your car loan could cost you a hefty application or establishment fee so it pays to be aware of these and shop around to compare car loans before committing.
As well as application or establishment fees there are other fee speed bumps to slow you down. These include documentation, on-going and encumbrance fees. However, when you turn into Penalty Street, your loan is speeding towards a dead end.
If you miss a payment, even by one day, you could be slugged around $50. Do that a couple of times a year and, all of a sudden, your loan repayments are up there with the cost of petrol.
Traditionally the domain of credit unions and building societies, car loans and personal loans are very competitive but many fees and penalties can be avoided altogether.
Some car loans do not have a fee for application or establishment and the majority do not charge a documentation fee.
One fee to watch out for is the encumbrance fee or REVs as it is known in the trade. This fee is charged to cover the cost of ascertaining if there is any previous claim to the car’s ownership title that would affect the lender. The cost starts from around $10, so be aware of anyone charging too much.
One last warning – if you hope to pay out your loan earlier than the contracted time, make sure you don’t sign up to a loan with an early repayment penalty. The unexpected sting in the tail could bring on an attack of car loan rage.