Car loans from hell How to avoid the traps
Whilst there are some great promotional deals on the market, there are some precautions you can take to avoid being stuck with the car loan from hell.
Laine GordonMar 9, 2010( 3 min read )
Discounted Personal Loan (Car Loan)
Advertised Rate
5.64%
Fixed
Comparison Rate*
5.99%
Upfront Fee
$250
Loan amount
$20k to $100k
Repayment
monthly over 5 years
Pros and Cons
Pros
- Features a low rate
- No ongoing fees
- No early repayment fees
- Can apply online
- Can apply in branch
- Suitable for both new or used car
Cons
- Application fee charged
- Requires security to be held
People's Choice Credit Union Car Loan Fees and Features
New Car | Missed Payment Penalty $20 |
Used Car | Redraw Activation Fee $0 |
Motorcycle | Repayment Type Fixed |
Boat | Loan Type Secured |
Upfront Fee $250 | Secured By Vehicle |
Early Exit Penalty Fee $0 | Available to 457 Visa Holders |
Borrowing range $20k - $100k | Redraw Facility |
Total repayments $34,499 | Extra Repayments |
Ongoing Fee $0 |
Other Benefits
LVR of up to 120% allowed
Other Restrictions
Available for cars up to 2 years old from year of manufacture (2018)
Compare and review car loans with similar features
People’s Choice is one of Australia’s largest credit unions, with more than 375,000 members across Australia. With branches in South Australia, Victoria, the Northern Territory, Australian Capital Territory and Western Australia, People's Choice Credit Union has more than $10.7 billion of funds under management and advice and about 1,000 employees.
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FAQs
What is a pre-approval?
A pre-approval is a formal document that indicates how much a lender is willing to lend to a consumer – once that person has found the car they want to buy. A lender will assess a borrower’s credit history and financial circumstances before issuing a pre-approval. However, lenders are under no obligation to follow through on pre-approvals, so pre-approvals should be seen as statements of intent rather than rock-solid guarantees.
What is a guarantor on a car loan?
A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.
Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.
Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.
What is a guarantor car loan?
A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.
Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.
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.
Can I get a discounted student car loan?
Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.
Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.
As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.
How much can I borrow with a car loan?
There’s no set number. That’s because borrowing capacity differs from person to person, as well as lender to lender.
Lenders don’t give out car loans unless they’re confident they’ll be repaid. Each person is different, so the amount of money one person can successfully borrow will differ from another person’s number. Also, each lender uses its own formulas to calculate borrowing capacity – so Mr & Mrs Smith might find that while Lender X will give them a car loan for $20,000, Lender Y will offer only $18,000.
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.
Where can I get a guarantor car loan?
There are multiple lenders who are willing to provide loans secured by guarantors.
If someone is willing to go guarantor for you and they meet the requirements set out by lenders, you can apply for guarantor finance online, over the phone, or in person.
Some banks also provide guarantor car loans, though because they’re larger banks, they may have higher interest rates than smaller lenders.
You may want to compare guarantor car loans at RateCity, and find a guarantor car loan ideal for your purposes.
Do banks do guarantor car loans?
Yes, some banks will be willing to provide guarantor loans, including Commonwealth Bank, NAB, Westpac and ANZ, though the terms for signing up to a banker-issued guarantor car loan may not necessarily be as good as another lender.
You should keep in mind though that these larger banks, because of their monopoly of the market, tend to have higher interest rates than the smaller lenders.
In comparison, smaller loan companies and credit unions tend to be more competitive in their battle for your business. There are plenty of lenders willing to lend to people with bad credit or no credit history who have willing guarantors.
Can I get a car loan with bad credit?
Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.
You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.
If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.