More than $1.14 billion was advanced in vehicle loans in April 2018, according to the Australian Bureau of Statistics, which is great if you’re buying a car – as long as you pick the right loan.
People’s Choice spokesperson Stuart Symons says there are five key questions car buyers should be asking if they are borrowing for their new (or used) car.
1. Have you done your homework early?
“Setting up your finance before you find your dream car can potentially save you thousands of dollars,” Mr Symons said.
“Getting the right loan can make a big difference to your interest payments over the life of a loan, and having preapproval or ready funds puts you in a position of strength when it comes to negotiating with the dealer. This alone means you might be able to bargain more strongly to get the car you want, especially if you say you can take it today,” he said.
“Head over to ASIC’s Money Smart website to compare the cost of different car loans but make sure you include all of the costs of the loan, not just the establishment fees,” he said.
2. Have you got the best rate for you?
“There are increasing trends toward different rates to reflect different risks – and that trend is increasing,” Mr Symons said.
“Large financial institutions will start sharing data about borrowing habits from 1 July 2018, so there will be a deeper understanding of your payment record. Hopefully this means your credit score will improve as records start showing more of the positives, and not just the missed payments,” Mr Symons said.
“Knowing your credit score will help position you to get the best rates, which you can lock down before you go into the car yard by applying with your last two payslips, evidence of other income, details of your assets and liabilities, and relevant insurance policies,” he said.
“This may open the door to market-leading rates that could save you thousands of dollars. Check out your credit score online today to see how your fare. If you’re over 600 points, most institutions will look favourably upon you,” he said.
3. Look past weekly repayments – ask about the comparison rate
“It’s very easy for buyers to get caught up in the moment and agree to a weekly repayment. After all, $155 a week may seem completely reasonable when you’re looking at the car of your dreams,” Mr Symons said.
“But what if the next day you were told you could have another half-tank of petrol free every week and save at least another $1,000 over the next five years?” he said.
“The comparison rate gives you a better understanding of the likely costs behind a car loan, including establishment costs and monthly fees, so you can better understand how much you are likely to be paying. Too many people only consider the weekly payment or the headline rate.”
4. Are there additional costs for paying out early?
“A comparison rate includes expected costs and interest charged. For a car loan, it usually presumes a $30,000 loan over a five-year period,” Mr Symons said.
“But most people pay out their loan early or refinance before the end of the term, which means any early repayment fee doesn’t get included in the comparison rate. So ask outright whether there are any fees for early repayment or paying your loan in advance,” he said.
“If there are, consider looking elsewhere for finance as many providers do not penalise borrowers for early repayments.”
5. Can I get preapproval?
“Preapproval can be sought for car loans as well as home loans,” Mr Symons said.
“Getting preapproval puts you in the driver’s seat when you’re shopping for cars,” he said.
“You will still need an invoice from the dealer to complete the transaction, but the bulk of the work will be done. Most dealers take about a week to transfer a new car, so you can take care of your loan at the same time, but at least you know you’ll have the cash to back up your offer.”
6. How much control do I have over loan information?
“Convenience may be a short-lived thing,” Mr Symons said.
“You may be offered finance at a car yard and be able to take your car away. But how much do you owe, how do you make payments, and how easy is it to see what’s happening on your car loan?” he said.
“With some loans, you may need to call to get a balance or wait for payments that take three to five days,” he said.
“Convenience in the car yard doesn’t make up for being able to check your balance and transfer payments using your credit union or bank’s smartphone app,” he said. “That is real convenience when you’re looking at the next five years.”
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