Purchasing a car often requires financing, but not all car loans are created equal. Here’s five things to consider when ahopping for your loan.
Interest rate
Don't be blinded by an advertised rate. A lower rate means lower repayments, but do check if it’s fixed or variable and if it comes with extra costs or conditions.
The best way to judge the true cost of a loan is by using the Comparison rate. A comparison rate is an estimate of how much a loan could cost each year when interest, as well as most ongoing fees and charges, are totalled. Lenders are legally obliged to show a comparion rate so you can compare offers.
Loan term
While a longer loan term reduces monthly repayments, it also increases the overall amount of interest you will pay. If the term is shorter, look for "balloon" payments at the end, which could mean you have to pay a lump sum at the end of the loan, or roll the debt over onto the purchase of a new vehicle.
Fees and charges
Make sure you read the fine print and ask about fees and charges. These can range from application fees or ongoing fees (monthly account fees), or penalty fees such as late payment or early repayment fees.
Flexibility
Ideally your loan should be as flexible as your life is. Can you make extra repayments or pay the loan off early without penalty if your financial situation improves? Similarly, if you lose your job, fall ill, or take parental leave, can you negotiate a hold or change?
Secured vs unsecured loans
A secured loan (using your car as collateral) often has lower interest rates than an unsecured loan, but may only apply for cars of a certain age or value.
Disclaimer: This information is general in nature and does not consider your personal objectives, financial situation or needs.
Brokerage services provided by Elders Home Loans Pty Limited (ABN 22 118 064 654; Australian Credit Licence 384408) or its authorised credit representatives; or by Elders Asset Finance Pty Limited (ABN 39 670 506 617; Credit Representative Number 558452) as authorised credit representative of LMG Broker Services Pty Limited (Australian Credit Licence 517192). Lending criteria apply. Not all products of all lenders may be offered.