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How to Finance Your New Car

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You’re finally buying a new car! It’s equal parts exciting and intimidating. A car is one of the most important and expensive purchases you’ll ever make. That’s why looking for the right financing option is crucial. Finding a good car is only half the battle, after all. Getting the best car loan is what can make your investment truly worthwhile. 

The best way to make this investment successful is by being informed. Whether you’re a first-time buyer or looking to upgrade, this article can guide you so you can finance a new car. 

Types of car financing options 

The first thing you need to do is learn about the financing options available to you. Novice car buyers may not know that there are plenty of car loans out there that cater to specific needs. Here are just some ways you can finance your new car: 

New car loan 

A new car loan is a type of loan that lets buyers purchase a brand-new car. It may come with a variable or fixed interest rate, and it could also include a balloon payment. With this financing option, borrowers will pay back the initial loan amount plus the interest rate in regular weekly, fortnightly, or monthly repayments. 

Usually, these car loans don’t have restrictions on what make and model you can buy as long as it's new. The amount you can borrow depends on your financial situation and the lender’s discretion.  

Green car loan 

A green car loan is like a new car loan but for hybrid or electric cars. If you’re environmentally conscious, you can opt for a green car loan so you can buy a new car while minimising your carbon footprint. This type of car financing offers discounts on car loans if you choose a vehicle that’s in line with the lender’s green car loan criteria. 

Electric car loan 

An electric car loan is great for those who want to buy a new electric car. It works like a typical car loan, but it’s specifically for electric cars. Most electric cars are more expensive compared to their traditional counterparts. Having an electric car loan can help you purchase the electric car of your dreams while saving on loan payments.  

Dealer finance 

A dealer finance is a type of loan you can get from a car dealership. For some, opting for dealer finance is more convenient because the car purchase and loan all go through the dealer. However, you may have less negotiating power and control over your loan if you go with this option. 

Understanding interest rates and fees 

When you finance a new car through a loan, you’re expected to pay the principal amount (i.e., the amount you borrowed), along with the interest rate and other associated fees. If you’re unfamiliar with interest rates and fees, here’s a quick breakdown of what they are and what you can expect. 

Interest rates 

The interest rate is a rate charged by the lender that you’ll pay alongside the principal loan amount. The total interest rate is a percentage of the amount you borrowed and is noted as an annual percentage (per annum or p.a.). 

Car loan interest rates can be fixed or variable. A fixed interest rate refers to a car loan with a set interest rate for the entire loan term. For example, if you get a car loan with a fixed interest rate of 7%, that means you’ll pay a 7% interest rate for the rest of your loan term. 

Meanwhile, a variable interest rate means the interest you pay on your loan may change over time. The interest rate may change depending on various market factors. For example, you may pay a 7% interest the first few months, and then pay less or more in the next months when rates change. 

New car rates, in general, vary depending on the lender and your financial situation. To get the best deal, you need to make sure you have good credit and find a lender that offers low-interest rates. 

Loan fees 

When taking out a car loan, you’ll also be expected to pay loan fees. Common fees include ongoing service fees and establishment fees. There are also extra charges in case you want to make extra, early, or late repayments. Some lenders don’t charge additional loan fees at all. 

Before you choose a car loan, always check the fees associated with the loan itself. Sometimes, a loan may advertise low-interest rates but have higher than average fees, so it's essential to consider the overall cost. 

How to get pre-approved for a car loan 

When finance a new car, it’s a good idea to get pre-approved first. With a car loan pre-approval, you’ll get a better idea of what the new car interest rates and repayments will look like. You’ll have an easier time budgeting and expediting your car search. 

Here are a few tips to get pre-approved for a car loan: 

  • Get your finances in order. Pay off any outstanding debts, check your credit reports, and make sure you're in the best financial situation possible. Lenders consider your credit history to see if you’re able to pay off the loan. By having good credit, you’re more likely to get pre-approved and have lower interest rates. 
  • Prepare your documents beforehand. The best and quickest way to get pre-approved for a car loan is by having all the requirements ready to go. Some pre-approval loan applications are stalled because borrowers are missing some key documents which delay the whole thing. Come prepared and get pre-approved faster. 
  • Choose the right lender. Getting a pre-approved loan creates a hard inquiry on your credit which can lower your score by a few points. When getting pre-approved, it’s best to choose the lender you’re likely to take out a loan from. 

Why is budgeting for a car so important? 

No one wants to buy a new car that they can’t afford. When creating a budget, don’t just think about the cost of the car. Consider the loan repayments, your monthly bills, expenses, savings, and the like. Buying a car is important but responsibly financing your new car purchase is even more so. 

When you get your car loan pre-approval, you’ll see how much a lender is willing to loan out. You can use this as a guide when shopping around. It will make finding the perfect car much easier and quicker. It will also let you plan your monthly budgets better. 

How do you negotiate for the best deal on a car? 

To get the best deal on a car, you have to know your way around the negotiating table. Here’s how you can negotiate when it’s time to finalise your car purchase. 

Shop around

Go to different car dealerships to see the market rate of the car you want to buy. Compare the deals being offered and see which one best suits your needs. Knowing what the market is like will help you know if you’re getting ripped off or not. 

Keep a level head 

Negotiations can get emotional, but don’t let it get to you. Always keep your cool and think things through. Take a few moments (or even a day) to think about the offer and talk to the seller about it. You need to make sure you’re not letting the excitement of a new car purchase cloud your judgment. 

Walking away is always an option 

The most powerful tactic in your arsenal is to walk away. Don’t feel pressured to agree to a deal you don’t want. If you don’t like how things are going, simply walk away from the deal and look elsewhere. The salespeople may backtrack and provide a better offer. And if not, then you’ll be much better off getting your car at another dealership. 

Use online car buying services like OnlineAuto 

If you want to get the best deal on your new car, OnlineAuto is a great place to go. They provide an all-inclusive service that includes finding the best finance option. All you have to do is choose the car you want and let them do all the heavy lifting.  

They’ll do the research, provide you with loan options, and look for the best insurance. You can get a car delivered right at your doorstep too. It’s a convenient and completely stress-free way to purchase a new car. 

Finance a new car with a low-rate car loan! 

Buying a new car is easy when you get your financing in order. For the best low-rate car loans, get in touch with loans.com.au today! Talk to one of our friendly lending specialists or apply for a loan online.

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About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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