Car Loan Tips

Car Loan Tips

There are many car loans around in today’s finance market, so how do you find the ideal one for you and your financial situation?

Searching for car loans is all about smart shopping, knowing what you want, your limitations and what you can afford to pay in repayments. Most people start with wanting a new car; which for most people means they will be looking at used cars, and set out looking at used car dealer after used car dealer until they find a car that they like, with perhaps some idea of the price range they think they can afford. However this is not being a smart shopper and in most cases leads to disappointment and damage to their credit file as the number of enquiries for credit in a short time frame increases.

Following these simple top ten tips to car loans, you will be able to find what you want faster and be on the road in your new car quicker.


1. Have a Budget

Firstly, know what you are looking at spending. If you are paying cash, then you know exactly what your budget is, and you can look at the cars within your savings or cash amount.

However if you are like most people, you will need to take out a car loan for your new car; and again for most people you will be looking at a used car, so you will be looking at used car finance, or used car loans. If this is the case, then you will need to know what the car loan repayments will be for an amount of money borrowed, or you will know what you can afford to pay in repayments each week, fortnight or month, so you need to know what that translates into for the loan amount.

Use either a loan repayment calculator, or a budget calculator, so you can work out your budget, knowing what you can afford to borrow, and what the repayments will be.


2. Research Your Credit File Rating

A credit file is a record of the financial history of a person which contains among other things, all the applications for credit you have made in the past 5 years. A prospective lender will look at your credit file, as one of the 6 aspects to decide whether to approve your loan application or not. For a complete explanation of the credit guidelines lenders use visit The 6 ‘C’ of Loan Assessment, as documented by Nigel Brookson.

Credit files provide evidence of your credit history, and can speed up the car loan approval process as those with good credit ratings know. People with a good credit history, get lower interest rate car loans, than people who have defaults on their credit file. It is still possible for some people with a bad credit history to get a car loan, because there are some lenders who specialise in bad credit car loans, and offer people a second chance. Find out what is on your credit file, and get a comprehensive credit file report, including advice on credit repair from My Credit File Report.


3. Research

Researching for the best car loans in the market is not the complex process it once was with many people using the Internet to find A Car Loan Online.

Just about every Bank, finance company and finance broker has a website that allows people to apply for a car loan online. However be very careful, and do not apply to more than one, without knowing the result, because every time you apply, you will probably be adding an extra enquiry on your credit file, which can stop a car loan being approved, if you have made several enquiries in recent times. Compare car loans from from banks and finance institutions to find which product goes with your needs best.
Compare the fees, using comparison rates all lenders must display. Read the information on the website to know more about the finance company. When you have selected one then apply.


4. Consider All Costs

Make sure when you research you take into account all the following factors when deciding what the amount you need to borrow will be in terms of your car loan.

  • There is the vehicle cost
  • Then there could be dealer charges; especially with new cars
  • There could be government costs such as stamp duty
  • There will be registration costs, and transfer of registration costs for used cars
  • You may need to do some work on the car, perhaps new tyres, or adding some security devices, and
  • There is car insurance, whether you just have third party, third party fire and theft, or comprehensive car insurance you may need to add this to the amount you borrow.

All of these can add hundreds if not thousand to the final amount you will be looking at borrowing for your car loan.


5. Types of Car Loans

If after working out your budget and you have done some research you need to decide, or a lender will offer you a type of car loan.

Generally speaking, car loans are customarily secured personal loans with the car being used as collateral. Car loans are able to offer lots of the same features as your standard secured loans with lower interest rates than unsecured loans, and can be taken over a 1 – 5 year term. Unsecured Loans have no mortgage tied to the car, and generally can be taken over a longer loan term, which can mean lower monthly repayments, however because of the greater risk to the lender, the interest rate will be higher than a secured loan.

You could also use your home as collateral to attain a car loan, known as a home owner’s loan, which means that you are extending your mortgage, or you could choose a personal loan which is an example of an unsecured loan. Lenders will often make a decision on what they will approve and offer that loan type or product to you to accept or reject.


6. Car Loan Interest rates

Choosing between car loans are much the same as deciding any type of loans with one of the most critical factors being the interest rates attached. Compare all the comparison rates available by the car finance companies and banks. This is where your earlier homework will help you out as you will already have a repayment figure in your mind, leaving the process of choosing one particular car loan far easier. What’s more, you want to find an affordable monthly repayment plan that will enable you to clear your car loan as soon as possible. Also bear in mind that because a lender advertises an interest rate, it does not mean that it applies to you. All applications for car loans are assessed on their individual merits, and you will only know what the interest rate will be once you have applied, and the lender has made an offer to you.


7. Dealer Car Finance vs. Getting Your Own Car Loans

Now, there are many car dealers, including used car dealers, that can provide car finance on the cars they sell through their own dealer financing options. There are many benefits to this, convenience being one, but there could be negatives as well, such as a higher interest rate. Often though car dealers use a finance broker who specialises in car loans, called a car loan broker who can find the best car loan possible from their panel of lenders. Often too many a used car dealer will try to make the used car finance as cheap as possible to sell the car. So used car loans from a Used Car Dealer are often worth a good look.


8. Attached Car Loan Fees

Make sure you ponder all the attached fees that come with a car loan. The most common ones being monthly fees, redraw fees, establishment fees, and exit fees.


9. Duration of the Car Loan

The repayment term attached to your car loan will commonly range from 36 to 60 months worth of re payments for a secured car loan, and upto 84 months for an unsecured car loan. Statistics show however that the average duration of a car loan in Australia is 34 months, before the car loan is paid out; often replaced with another.


10. Like the Car

Taking out car loans for many people will be the second largest loan they will have, besides a home mortgage, so make sure that you like the car you are looking at buying. For some people, they may have to settle on something that’s not quite what they had in mind, perhaps because they could not afford the repayments on their first choice, or perhaps because of their credit rating, they had fewer options, but for most people plan to keep the car for 5 years, so make sure it will service your needs, and possible changes to your life style, such as children; if you have none now, you may in a few years time. Will the car still be able to handle this change?

Keeping these basic steps in mind, you will be able to find the very best car loans, or car finance for you.