Report reveals impact of car loan repayments
A report by the Australian Automobile Association (AAA) has revealed that the average Australian family is spending up to $22,000 every year on transport, with the largest component being car loan repayments.
According to loans.com.au Managing Director Marie Mortimer, the report is a wake-up call for borrowers, showing that they need to get as serious about finding the best value car loan as they are about their home loans.
“Australians are getting increasingly smart about shopping around for the best home loan but for some reason this has not carried through to cars where many just dial up a big bank or take whatever finance the dealer is offering,” Ms Mortimer said.
“That is a big mistake because even though the car loan sums are smaller, the interest rates on car loans vary more than for home loans so you could end up paying thousands more than you should.”
According to the 2016 Australian Automobile Association’s (AAA) Transport Affordability Index, the total annual transport cost for an Australian family with two cars, one of which is financed, ranges from $21,791 in Sydney to $14,100 in Hobart.
Regardless of location, car loan repayments are by far the largest component of transport costs, at $125 per week, compared to just $60 for fuel, about $18 for insurance and $23 for servicing and maintenance.
Research by loans.com.au on 22 August 2016 shows that the Big Four banks1
were charging an average of 9.49 per cent2
(10.45% comparison rate), compared to loans.com.au’s current advertised interest rate of just 4.69 per cent (5.24% comparison rate)
For a family car costing $30,000, that translated to an average of $8,645 in total interest on a fixed rate five year loan from a big bank, compared to just $4,167 from loans.com.au3
“When you buy a car you are perfectly entitled to arrange your own finance so buyers should not feel pressured to go with the first finance they are offered,” Ms Mortimer said.
“Smart buyers do their research before they go looking for a car and get a pre approved car loan
from their preferred lender so they aren’t left scrambling for finance once they are negotiating for a vehicle.”
1 ANZ, NAB, CBA and Westpac
2 Calculation is the average of the rate charged by ANZ, Westpac and CBA on their five year fixed rate loans, and the rate charged by NAB on its 5-year fixed rate personal loan which is marketed to car buyers. As at 22 August, 2016, NAB did not have a purpose-specific car loan.
3 Interest calculated with a loan amount of $30,000 over 5 years using the 10.45% average comparison rate by Big Four banks versus 5.24% comparison rate for loans.com.au