Apart from your home. The next single biggest single purchase you are likely to make in your life, is buying a car and then having to decide how to pay for your new car.
You will find buying your new car on finance can be time consuming and it is:
- Nothing like buying a new pair of shoes or a shirt; and
- Not as much fun as driving your new car.
But, don’t let the excitement of buying your new car get in the way a making a good financial decision. It is important that you choose the right car loan that best suits your own individual needs and financial circumstances.
This article is prepared to help you quickly and easily understand:
- Should you arrange your car loan before buying your new car?
- Should you do your research/homework before buying your new car?
- Is it important to seek expert and professional advice from a professionally qualified and expert finance broker?
- Should you compare car loans offered by the different lenders/credit providers?
- Are there different finance options you can choose (i.e. car dealership finance or alternative car loans provided banks and non-bank lenders)? and
- Some Useful “Tips”.
Should You Arrange Your Car Loan before Buying Your New Car?
Arranging a car loan, before you even find your new will benefit you in a number of ways. For example:
- You will know exactly - how much you can afford to spend?
- You will know exactly - what you repayments will be? and
- You will have the upper hand when negotiating the purchase of your new car with the car dealership or private seller.
Should You Do Your Research Before Buying Your New Car?
The bottom line when doing your research before buying your new car. Is that this is the best to compare car loans being offered by car dealerships, banks' and non-bank lenders. By comparing different car loans you will be able to quick and easily decide:
- Do you want “Car Dealer” Finance (i.e. provided by car dealerships)?
- Do you want “Alternative” Car Finance (i.e. car loans provided by banks and non-bank lenders)?
- Do you want a Fixed or Variable interest rate?
- Do you want to have a secured or unsecured loan?
- Do you intending to use the car for personal or business use (i.e. you should consider seeking advice from your accountant and visiting the ATO website at www.ato.gov.au for more information)?
- Does your current financial situation enable you to handle your car loan repayments (i.e. you don’t want to default on the car loan just because you cannot afford to repay the car loan)? and
- Are you be better off with a lower interest rate option or a flexible repayment option)?
When Doing Your Research - Seek Expert and Professional Advice
At the same time as doing your research and reading the information available on websites, you should also consider speaking to our ”professionally qualified and expert finance brokers” at Singh Finance. You will find that they are not just home loan experts, they are also experts in arranging car loans. So, why not let them:
- Help you understand and compare the different car loans being currently offered by the banks and non-bank lenders; and
- Assist you in choosing the right car loan that best suits your own individual needs and financial circumstances.
Finding the Right Car Loan for Your New Car
Finding the right car loan for your new car can be complex and confusing. Added to this, is the fact that individuals and businesses have different options available to them.
To help you find the right car loan here is a brief summary of the car loans you can consider:
- Car Loan: A car loan (also known as a consumer loan or a secured loan) is a personal finance product for the specific purpose of buying a car. It is worth noting. If you wish to purchase a late model motor car and you don't have significant business use of the motor car, and you don't have the option of Novated Leasing (salary packaging), then you will find that a car loan can be a suitable option to choose;
- Personal Car Loan: A Personal Car Loan (also known as an unsecured car loan) is a personal finance product where the lender/credit provider will lend you the money for the purchase of your motor vehicle, but they do not hold any security over the loan. It is worth noting because, lenders/credit providers do not hold any security over personal car loans, then this type of loan can suffer slightly higher interest rates;
- Personal Car Lease: A Personal Car Lease provides the advantage of leasing to private customers. So, if you are considering using the motor vehicle "wholly or predominantly for personal, household or domestic purposes", then this type of loan is an ideal option to choose;
- Chattel Mortgage - A Chattel Mortgage suits someone who is going to use the motor vehicle predominantly for "business" use. The lender/credit provider secures the loan by holding a mortgage over the motor vehicle. This type of loan is used by companies, trusts, sole traders, partnerships and ABN holders.
- Commercial Hire Purchase - A Commercial Hire Purchase (also known as a Corporate Hire Purchase, Hire Purchase or Offer to Hire and is often abbreviated as CHP or HP) is a commercial finance product where your "business" hires a motor vehicle from the lender/credit provider (financier) for a fixed monthly repayment over a term, and has the option to purchase the motor vehicle at the end of the term.
- Novated Lease (Salary Packaging) - A Novated Lease is a method of salary packaging your motor car. An agreement is struck with you, your employer and the lender/credit provider (financier), whereby you lease the motor car and your employer will pay the lease payments and the vehicle operating expenses from your pre-tax income.
Tip #1; Car Dealer Finance option vs. Alternative Car Finance Option
Car Dealer Finance loans are done through approved car dealerships. The car dealerships usually have their own financial institution (i.e. finance company) and these finance companies usually have their set terms that they use to offer car loans to buyers. With car dealer financing arrangements you will:
- Usually require a good credit history;
- Be required to pay the loan directly to the car dealer’s finance company; and
- Have more negotiating power with the car dealer finance deal, if you have money saved for a deposit and you are ready to put down the deposit.
Note: Keep in mind, if the car dealership offers to arrange finance for you and before you settle for what the car dealership is offering. Do your research to compare the car dealer’s finance arrangement with what the banks and non-bank lenders are offering. In many cases, the terms offered by banks and non-bank lenders may far outweigh the low interest-rates the car dealerships are offering.
Tip #2: Fixed and Variable Rate Finance Option
When shopping around for a car loan, compare interest rates to see which, lender/credit provider will give you the best deal. You can choose between a fixed or a variable rate loan. These types of car finance options are where the interest rate may stay the same throughout the course of the loan term (fixed rate) or it may change along with market rate fluctuations (variable rate).
With a fixed rate car loan:
✔The interest rate is locked-in for the term of the loan;
✔Your repayments will be set, so you know exactly how much you have to repay each month; and
✔You will miss out on favourable market conditions.
With a variable rate car loan:
✔The interest rate increases or decreases in accordance with the rates in the marketplace; and Note
✔You will find it harder to budget since the interest rate can change
: You will generally find that car loans offer fixed rates
instead of variable rates
Tip #3: Secured or Unsecured Loans
You can choose between have a secured loan or an unsecured loan.
With secured loans:
✔You offer the asset (i.e. the car you are buying), as security for the loan to the lender/credit provider;
✔If you don’t make the repayments, the lender/credit provider can repossess and sell your asset to get its money back; and
✔The age of your car will affect its resale value, so if your car is sold for less than you owe, you will still have to pay the lender/credit provider the difference
With unsecured loans:
✔You do not need to offer an asset as security; Tip #4: Compare Car Loan Features
✔You may not be able to borrow as much;
✔Interest rates are usually higher with unsecured loans, because the lender/credit provider is taking a bigger risk;
✔If you do not repay the loan, the lender/credit provider can take you to court to recover its money; and
✔Unsecured loans are usually taken out to buy used cars.
With any type of car loan arrangement being offered, you should shop around and compare different car loan deals being offered and, choose the car loan deal that best suits your own individual needs and financial circumstances. When comparing car loans you should compare all the features, not just the interest rates. Here are a number of features you should consider:
- Choose the loan amount that you can best afford to repay;
- Compare repayment options. Because you will find that some lenders/credit providers will give you the option to:
- Pay your instalments to line up with your repayments (i.e. weekly, fortnightly or monthly), and/or
- Make additional payments so that you can pay off your loan faster.
- Compare the length of the loan term, because, with some lenders/credit providers the loan term can be as short as 12 months while with others it can be as long as seven years;
- Compare application fees, annual fees, and other additional charges and choose the car finance product that will not hurt your finances;
- You may want to choose a car loan product that offers some flexibility in repayments, as you may want to pay more than the designated instalment amount, so you can pay off the debt faster (e.g. if you decide make extra repayments from time to time and you want to repay the loan sooner, will you be charged an early repayment fee)? and
- You should compare restrictions between different lenders/credit providers to find a lender/credit provider that best fits your needs and financial situation. These restrictions can be that:
- Some lenders/credit providers may stipulate that the borrowed money can only be used toward the purchase of a motor vehicle (car); or
- Some lenders/credit providers may stipulate that you can only pay designated amounts at set intervals.
SEEK EXPERT and PROFESSIONAL ADVICE
Singh Finance is a reputed Australian finance brokerage firm that employs a team of expert and professionally qualified finance brokers. We welcome the opportunity to help you obtain a pre-approved car loan. We will even arrange comprehensive motor vehicle insurance for your new car.
For an obligation free assessment, call us on 0424 190 908 today or simply click on the "ENQUIRE ONLINE" form
Disclaimer: This article is of a general nature only and does not constitute professional advice. I strongly recommend that you seek your own professional legal and accounting advice in relation to your particular circumstances.