Whether you’re buying a new car for the first time or nearing the end of your old one, here’s what you need to know about finding a great car loan.
Have a clean slate
Not all lenders will give you the green light for a car 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.
Know how much you can afford
Sit down and work out how much you can realistically afford each month – and then give yourself a buffer. Use a car loan calculator to help you crunch the numbers.
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.
It pays to compare
In the same way that you’d shop around for the best price on a new car, shopping around for a great car loan can ultimately save you hundreds, if not thousands, of dollars. Conducting a financial comparison will save you time otherwise spent trawling providers’ websites and will likely save you money too.
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 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. Always look at all your options from credit cards, personal loans and car loans to find the cheapest interest rates and best deals.
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.
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. Make sure you always ask the question before you confirm the loan.
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.
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.
Organise your finance first
It might be tempting to buy first and worry about the finance later, but that could cause big problems if the lender won’t give you as much money as you need or if the loan application process drags on. The smart thing to do is to tidy up any finance-related issues first and then go shopping.
Related car loan links