If you’re in the market for a new or used car, you’ll probably need to take out a car loan.
Before you make any applications, it’s important to understand the basic terms involved in getting a car loan before you apply so that you know what you’re getting into. This blog post will outline some of the important terms you should understand before applying for a car loan.
- Interest Rates: Car loan interest rates have a significant impact on how much your monthly payments will cost and how much you will pay in total over the life of the loan, which is added to the principal owing. Make sure you compare not just the advertised rates, but also alternative comparison rates since they usually include additional fees and charges.
- Fees: Typical fees you may be charged include application or set-up costs, monthly account maintenance fees, early repayment penalties, and redraw charges.
- Repayments: When you borrow money, you agree to repay the loan over a certain period of time, plus interest. The amount you will repay each month (or week, or fortnight) depends on the interest rate, whether it’s a fixed or variable rate, any fees involved, and the length of the loan term. You may also have the option to make a balloon payment at the end of the loan term. Making regular repayments is important to clearing your loan and avoiding extra interest charges. If you’re having trouble making repayments, talk to your lender – they may be able to offer you a different repayment plan that suits your circumstances better.
- Lending Criteria: Different loans will have different lending criteria, so check to see whether you fulfil the requirements for the loan product you’re interested in before submitting an application. This usually includes being an Australian citizen or permanent resident, earning an income minimum and having a good credit score. Other criteria may relate to the vehicle type, age and value.
If your application is successful, you’ll be offered a loan contract with the terms and conditions of the loan. Make sure you read and understand the contract before signing it, as this will form the legally binding agreement between you and the lender.
How Can I Find The Most Suitable Car Loan For Me?
It may be worth considering the following factors while looking for a vehicle loan to find the best fit for your budget:
- New vs Used Cars: New cars may come with lower interest rates than used cars but used cars are generally more affordable. Depending on the lender, you may only be able to get a used car loan for vehicles up to a certain age, such as 3-5 years. For cars that are older, you may need to apply for an unsecured loan option which will have higher interest rates. Have a particular make or model in mind? Buddii can help with our Car Finder service.
- Secured vs. Unsecured Car Loans: A secured car loan is one where the vehicle you are purchasing acts as collateral for the loan, meaning that if you default on your repayments, the lender can repossess your car. Unsecured car loans don’t require collateral and may have higher interest rates as a result.
- Fixed vs. Variable Rates: With a fixed-rate loan, your interest rate will remain the same for the entirety of the loan term. This can provide some stability and peace of mind, knowing what your repayments will be each month. Variable rates can change over time, which could mean that your repayments increase or decrease. There may be some benefits to a variable rate loan if interest rates drop, as determined by the Reserve Bank of Australia’s cash rate.
- Loan Term: The loan term is the length of time you have to repay your car loan. Loan terms can be anywhere from 1 to 7 years, and sometimes even longer. The longer the loan term, the lower your monthly repayments will be. However, you will end up paying more in interest over the life of the loan.
- Loan Features: Some car loans offer helpful features, such as allowing you to make extra repayments or the ability to pay off the loan early without any fees. Be sure to read the product disclosure statement before applying to learn about any redraw fees or caps.
- Balloon Payment: A balloon payment is a lump sum payment that you make at the end of your loan term. This payment is usually equal to the value of your car and is designed to repay the remaining amount of your loan. Deferring a portion of the loan lowers the regular repayment amount, but it also mean’s the total cost could be higher. Make sure you calculate that you can afford to repay the lump sum at the end of the term if you’re considering opting for a balloon payment.
What other costs should you consider when comparing vehicle finance options?
Whilst calculating the cost of a car loan, it’s worthwhile factoring in any extra costs that can come with car ownership. This will help you ensure you’re able to afford your car comfortably, without any financial stress.
Some of the ongoing costs to consider include:
- Compulsory third party insurance
- Servicing and maintenance
- Tolls and parking fees
Learn More About Getting A Car Loan
If you’re considering a car loan, it’s important to borrow only what you need and to choose a repayment schedule you can afford. It’s also important to know the basics of the agreement and what the terms mean. However, it can be confusing. That’s where Buddii can help.
We are a trusted Brisbane based finance broker with nationwide connections. Our experienced team can help guide you through the process of getting a car loan and take the time to understand your situation. We have a wide range of lenders to help find a competitive rate that’s tailored to you. We can help you find a new or used car, secured or unsecured car loans, fixed or variable rates and create the loan term and features. So don’t hesitate to give us a call today.