It's safe to say that most people want to own a car. Travelling to and from school, the office and other destinations is a lot more convenient if you have your own vehicle.
But it can be expensive, and not everyone has the money to pay for a car up front in cash. Thankfully, they can apply for a car loan to finance the car instead.
A car loan is a loan taken out for the purpose of buying a car. If you haven't got enough in savings to buy a car, but you can afford to repay a loan in monthly instalments, you may want to consider taking out a car loan to finance your new set of wheels.
A car loan allows you to borrow a certain amount of money to buy a car. In return for the loan, you pay interest to the financial institution that lent you the money. You need to pay back the loan within a certain period of time (called the term) which ranges from three to five years at loans.com.au. This is the amount of time over which you agree to pay back the loan, usually in monthly installments.
In addition to repaying the amount you borrow, you will also be charged interest. You can try our car loan calculator to work out approximately how much your car will cost you over the term of your loan.
As you can see, there are several components which make up a car loan. We'll cover these in more detail below.
There are three main options when it comes to buying a car on finance. Firstly, you can take out a car loan through the car dealer. While dealer finance can be convenient, and requires no planning, their car finance rates are often higher. This can add significantly to the overall cost of the loan.
Another way is through a bank. Finally, you can apply for a low-rate car loan from an online lender.
The key to making use of a low-rate car loan is to get pre-approval from the lender before you go the the car dealership. This allows you to resist any pressure from the dealer to use their finance. It also takes away a bargaining chip that the dealer can use to extract a higher price for the vehicle, as you will not be dependent upon them supplying your finance, and will not need to divulge your borrowing capacity. Whichever option you choose, make sure you have shopped around for the best rate. The best rate these days is often with a non-bank lender such as loans.com.au so you don't want to regret going with dealer finance, and paying too much for both the loan and the car.
You will have to provide the following when getting final approval for a car loan:
Make sure you compare car loans from different lenders. Check the interest rates, charges, and the amount that you can borrow. To find out how much you need to pay on a regular basis, you can use a car finance calculator. It will also show the total interest you will pay based on the loan amount and frequency of payment.
One important thing to note is that a car finance repayment calculator should only be used as a reference. Since there are other factors that can affect your car loan, make sure to seek advice from a car loan expert.
Generally speaking, a car loan with the lowest possible interest rate, and little to no fees (low comparison rate) is best.
However, you should be mindful to look at more than just the interest rate. Some lenders advertise a low rate on the loan, but make up for it with exorbitant fees instead. That's why it's important to look at the comparison rate as well, because the comparison rate factors in upfront and ongoing fees. Some incidental fees aren't factored into the comparison rate, so it's worth looking into these as well so that you aren't caught out if you need to pay them.