When buying a car, finding the right vehicle is important, but so is making sure you get it at the right price. Unless you have wads of spare cash, you are going to need finance and some loans are more expensive than others. This article looks at the finance options available and provides tips on how to get the best deal.
Things that affect how much you pay
There are several factors that will determine how much you ultimately pay for your car loan. These include:
Credit rating
The better your credit rating, the more likely you are to be approved for the finance you want and the more likely you are to get a better interest rate. If you have a bad credit history, you will be perceived as higher risk and will receive a higher interest rate because of it. However, a credit rating can be repaired over a relatively short period of time, so if you were to pay your debts on time for a year and establish a regular savings pattern to demonstrate your ability to repay, then you may be able to secure a lower interest rate loan after all.
New or used vehicle
Whether the vehicle is new or used will also determine the interest rate you pay if you go the traditional route of a car loan from the bank. As a general rule, a used car buyer can expect to pay between 2-4% more in interest than a new car buyer. While that might make a new car seem even more attractive, you need to remember that you will be paying a lot more for a new car. Also, these low interest rates are often only available on certain makes and models and usually only for three years, so you would need to be able to pay the car loan off in that timeframe.
Other factors
Other factors that can influence the amount of interest you pay on your loan – especially if it’s from a bank – include your marital status, number of dependents, disposable income, length of employment and so on. How much you borrow can also be a determining factor. Sometimes borrowing more can secure you a lower interest rate and the extra money you borrow could be put towards accelerating your repayments, providing the loan conditions allow you to do this.
Types of loans
While you might automatically think car loan when going to buy a car, it’s not your only option! There are several different types of finances to look at when purchasing a vehicle and some offer better value than others.
Dealer finance
Some car dealerships also offer finance to help buyers get a car. The catch is that you will have to buy your car through them! You can also be limited in your ability to negotiate the price of a vehicle if you choose to go with a loan from the dealership. Often dealership finance includes the option of what is known as a residual value or ‘balloon’ payment at the end of the loan. This has the effect of making your regular repayments lower, but leaves you with a lump sum owing at the end of the loan period. You need to be sure that you can pay this amount when deciding whether to opt for a residual value loan. As well, this balloon payment is often based on market rates at the time it is due.
Personal loan
A personal loan from a lender offers flexibility, in that it is not tied to a particular car and can be used to purchase any make or model, new or used. Having a pre-approved personal loan can also increase your negotiating power with a dealership. Personal loans may appear to have a higher interest rate when compared with a dealership’s finance options, but can be better value in the long run. You’ve also got a lot more power on how you spend the money towards getting a new car. For example, you might buy a vehicle privately for a low price because the registration is about to end. You can then use some of the money from your personal loan to cover the extra immediate cost of renewing the car’s rego.
Secured or unsecured loan
The other main difference between types of loans is whether they are secured or unsecured. A secured loan is one that is tied to an asset, usually the vehicle, meaning that if you default on the loan, the lender can sell the vehicle to recoup their losses. Secured loans are often required when purchasing a brand new car, as it is a more valuable asset than a used car. Unsecured loans are often taken out to purchase used cars, which have lower resale values and therefore offer less collateral. You may not be able to borrow as much in an unsecured loan and the interest you pay will generally be higher, as the lender is taking a greater risk. SRG Finance offers both secured and unsecured loans, and you can use other belongings like jewellery or a motorbike as collateral for the secured loan.
Things to look out for
There are two further things to consider when deciding on a loan, particularly with dealership finance. While it may be convenient to obtain on-the-spot finance and ‘drive away today’, make sure there are no catches in the fine print.
Hidden fees
While dealer finance may offer lower interest rates, it also often contains a range of hidden fees and charges. These can include dealer origination fees, establishment fees, security registration fees, account-keeping fees and on road costs and you will need to compare the cost of these fees with the savings provided by a lower interest rate.
Penalties
One of the best ways of paying a loan off early is to make additional repayments during the life of the loan. The trouble is, some lenders don’t make as much off the loan if you do that, so many include penalties for paying a loan off early or they may even prevent you from making extra repayments at all. Make sure you check this out when considering a loan provider, particularly if you plan to pay it off as quickly as possible. At SRG Finance we allow you to make extra repayments on your loan, but you’ll need to talk to us first.
Shop around
Don’t be afraid to spend some time looking around at the different financing options out there. Ultimately it’s about finding the loan that works best for you, especially when it comes to repayments. If you decide to get a loan with us at SRG Finance we can have the money to you fast so you don’t have to worry about missing out on a great deal on your dream car!
