You don't have to break the bank to buy a car. With a car loan, you can finance your car purchase with ease. Not sure how to go about it? Don’t worry, here’s a quick guide on what you need to know about car finance:
How does car finance work?
A car finance or car loan is used for the express purchase of a vehicle, new or used. Using the funds provided by the lender, you’ll be able to buy the car of your dreams. Of course, just like any loan, you’ll have to pay back the loaned amount with interest in a specific timeframe.
Usually, borrowers make monthly repayments over a two- to seven-year loan term. The loan term and repayment frequency can vary depending on what the lender and borrower agreed upon.
The total cost of your car loan depends on several factors such as:
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Principal amount – This refers to the initial amount you borrow from the lender.
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Interest rate – This is a fee charged by the lender you must pay in addition to the principal amount. This is the cost of car finance.
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Repayments – When you pay back your loans monthly, fortnightly, or weekly, those are called loan repayments. The repayment amount consists of a portion of the principal amount plus the interest charge.
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Loan term – This is how long you’ll be making repayments until you’ve completely paid off your loan.
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Balloon payment – This is a lump sum paid after the loan. Most buyers opt for a balloon payment option so they can reduce their repayments.
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Deposit – Also known as a downpayment, this amount is paid upfront lessening the total amount you borrow. Borrowing less could also lower interest costs.
Depending on the lender, you may also have to pay additional fees such as annual or monthly fees, exit fees, early payment fees, establishment fees, application fees, and the like.
What are the different kinds of car loans?
When it comes to car loans, you can choose from a range of types. Finding the perfect kind of car loan is essential. Keep the following car loan types in mind when deciding on a car loan.
Secured car finance vs Unsecured car finance
Secured car loans require borrowers to put up the car purchased as collateral. If the borrower fails to make repayments or defaults on the loan, the lender can repossess the vehicle purchased through the loan. Most car buyers choose a secured loan because it typically offers lower rates and better terms.
On the other hand, unsecured car loans don’t require any guarantee from the borrower. However, interest rates are usually higher with stricter terms. Lenders also tend to limit the amount you can borrow with an unsecured loan.
Fixed-interest rate vs Variable interest rate
When a car loan has a fixed interest rate, it means the interest rate does not change throughout the loan term. Your repayment amounts stay the same until the end of your loan. Meanwhile, the interest you pay varies for a car loan with a variable interest rate. Your repayments could rise or fall depending on the changes in interest rates.
How do I find a good car loan?
The ideal car loan is one with low rates and good loan features. However, finding the best one among the many car finance options can be challenging. So, how do you go about finding the perfect car loan for you?
Check the comparison rates
A quick and easy way to find the best deal is by using the comparison rates on car loans. Comparison rates include the interest rate plus additional fees and hidden charges. These rates give you a more complete idea of the cost of the loan.
Some car loans have extremely low interest rates but make up for them with hidden fees. By looking at the comparison rate, you can avoid those types of car loans.
Talk to different lenders or dealerships
One of the best, albeit time-consuming, ways to get a good deal is by shopping around. Go to different lenders and dealerships to see what types of car loans are available. This will take a bit of effort on your part, but the results are usually worth it.
Use brokers like CarLoans.com.au
With a car loan broker like CarLoans.com.au, you won’t have to go above and beyond just to get a good car loan—we'll do that for you. You don’t have to worry about contacting heaps of lenders and figuring out mountains of paperwork, we’ll take care of everything.
As a broker, we have an expansive network of reputable lenders and dealerships, that we’ll use to find the perfect loan for you. All you need to do is call 1300 889 669 or request a quote online!