Why a new car could save you money and April's top car loans

Why a new car could save you money and April's top car loans

It’s no secret that used cars are a hot commodity in the car loan market right now, which is good news for sellers but less-than ideal for buyers.

According to the latest Datium Insights-Moody’s Analytics Price Index for March, wholesale used-vehicle prices are 37 per cent higher than a pre-pandemic high set in February 2020.

Prices grew 5 per cent in the first quarter of the year. While this was the slowest quarterly increase over the past four quarters, it’s still faster quarterly growth than previous figures recorded over the last decade.

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Source: Datium Insights, Moody’s Analytics

There are a range of factors influencing this increase, including constrained new-vehicle supply, which has remained an issue in Australia. It is now “commonplace” to order a new vehicle and wait for it to be delivered.

Before you hop in the drivers’ seat, it may be worth exploring the pros and cons of the affordability of both used and new cars. This may help you to better choose the right kind of car loan for your financial situation this April.

Is a new car more affordable than a used car right now?

Short answer is that it depends on the buyer, their personal financial situation, and the car they’re interested in.

But there are a range of factors to take into consideration when assessing which vehicle type is more affordable, including:

  • Warranty – typically offered with new cars only and may save driver by covering the costs of defects and issues pre-100,000kms or in the first three years.
  • Fuel efficiency – generally speaking, newer vehicles may offer more fuel-efficient models.
  • Capped-price servicing – a newer vehicle may come with capped-price servicing, an option typically not seen in the used car market.
  • Depreciation – the biggest advantage of a used car generally is the vehicle will be more affordable than if you purchased the newest model from a dealership. A new car may begin to significantly lose its value in the first few years. But this depends on the make, model, and the used car market.
  • Lack of supply - If timing and urgency is a factor in purchasing a car, new vehicles have been dealing with supply issues in Australia. Global auto production has been stalled due to a shortage of a key component of modern automobiles. If you’re looking to drive away with a car ASAP, it may be worth opting for a used vehicle.

If timing is a concern or prices are still unaffordable, it may not be worth hurting your finances for a new vehicle. But, before you decide that a new car is out of your price range, it may be worth assessing the used car market against new vehicle prices at a dealership or online.

And, if you’re considering taking out a car loan to finance your purchase and there’s only a few hundred or thousands of dollars separating you from a new vehicle, it may be worth calculating the loan repayments on both used and new models. If you can nab a competitive new car loan, the repayment differences may be small enough to justify the new buy.

You may be wondering where you can find a competitive car loan that does just that, and this is where RateCity’s leaderboards come in.

We’ve done the hard work for you by ranking some of the most competitive car loans in the marketplace with our Real Time RatingsTM system.

Unlike other rating systems that grade their products once or twice a year, Real Time RatingsTM results are calculated in real time. This means you get the most up-to-date rating for your comparison. Each car loan is given a score out of five stars, based on loan costs and flexibility.

(Rankings are correct at the time of publishing. Please note lenders may trade places on the list as interest rates and fees change and RateCity’s tracker reflects these movements.)

Used car loans

 

New car loans

 

Green car loans

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Learn more about car loans

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

What is vehicle finance?

Vehicle finance, also known as a car loan, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Vehicle finance can be used for both new and used vehicles.

Should I service my own car?

There are also costs associated with vehicle ownership, such as paying for petrol and the obligatory ongoing maintenance. But should you cut down on costs by servicing your own vehicle?

If you’re considering getting out the tool box, spanner, and grease-laden towel, you need to carefully weigh up the risks and benefits. A trained mechanic will need to complete certain tasks, while you may be perfectly capable to handle other aspects yourself.

If you’re short on time, it may be worth paying for the convenience of a full vehicle service. However if you’re trying to slash your expenses, there are some basic maintenance tasks that you can complete yourself.

You should call a mechanic if you’re unsure about a vehicle maintenance task you’re about to take on. However there are a number of maintenance tasks that you may be able to complete with your own two hands including:

  • Replacing your car battery
  • Changing the oil
  • Replacing worn windscreen wipers
  • Replacing blown fuses

Remember to keep your car’s body in good condition, by washing and applying a protective wax on a regular basis, too.

Always check your car warranty agreement as some new car purchases come with an extended car warranty provided your services are conducted at the vehicle service centre where you purchased the car. In these circumstances, you may find the service fee is capped, alleviating some of the maintenance woes.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

What is a dealership?

A dealership is a car yard or a place where cars are sold.

What is a loan-to-value ratio?

The loan-to-value ratio, or LVR, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have a loan-to-value ratio of 75 per cent. Loan-to-value ratios change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the loan-to-value ratio would now be 67 per cent.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

How much is my car worth?

If you own a car, it may be something that can help you bring down the cost of your next vehicle purchase through its sale. However, before you can do that you’ll want to find out how much your car is worth.

Your car’s worth can depend upon various aspects, including:

  • Age
  • Condition
  • Model and make

A great starting place for aspects of this includes websites that offer online valuations, allowing you to enter your car’s make, model, year, badge and description, with the listed results displaying a price guide based on both selling your car privately and through a dealership.

Both have pros and cons, as cars can be very profitable, something that will no doubt impact any chance you have to make the most of your car’s value upon sale. Dealerships will try to profit on your trade-in by buying it for less than they can sell it for, so you shouldn’t expect the same price selling a car to a dealer that you would necessarily get selling a car privately.

Can I buy a car as a student?

Buying a car is a huge financial decision, and shy of marriage and purchasing a house (or perhaps around the world travels), it may be the biggest financial decision you make. But if you’re looking at your empty pockets, don’t despair! Your dream of owning your own car could become a reality, if you look for and compare the right car loans for your circumstances.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments. 

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.