If you’re considering a car loan to purchase your next car, the best place to start your research will be with a car finance calculator.
You’ll quickly be able to work out:
By playing around with a few figures, you’ll get a rough idea of how your car loan will fit into your current lifestyle and expenses.
To get a fairly accurate idea of your potential car loan costs, you’ll need to know how much you’re planning to borrow, and how many years you’d like to take the loan over.
Remember, a shorter loan term will mean lower total interest paid for the loan, in return for higher repayments.
For a more accurate result from the loan calculator, you should also specify whether you’re buying a new car or a used vehicle, your credit rating, and whether it’s for personal or business.
A loan calculator gives you a guide to your repayment amount across a variety of lenders, based on the loan term and other information that you’ve included. You should be able to adjust the repayment frequency to match a payment frequency that suits you.
A good car finance calculator will let you calculate the total interest payable on the car loan.
The total interest that you pay is the cost to borrow your loan amount for the period of time you take the loan over - it is what you pay on top of the actual amount of money that you borrow.
Having your total interest allows you to accurately compare the costs of different loans and loan terms.
If you take out a car loan based on this figure, your actual repayments and costs could vary from this estimate.
This is because the calculator doesn’t include any additional fees and charges to set up the loan, or may not take into account the specific circumstances of your car loan and purchase.
Your car loan interest rate depends on:
Depending on the car you buy, your interest rate may vary.
If you’re looking to buy a car that will be more than 15 years old at the end of the loan term, you may have to look at getting an unsecured loan which will have a higher interest rate.
Some cars hold value better than others too, and this is taken into account by the lenders rates.
You can find out your credit score by making a free credit check request. As an individual, you’re entitled to one free credit report each calendar year.
A finance broker will also be able to make a ‘soft check’ of your credit score to give you an accurate loan quote. This won’t put an enquiry on your credit file, it’s a special service a finance broker can provide, before proceeding to a loan application.
Be sure to check when you’re getting a loan quote how the broker is making the credit check. Using a finance broker means that you can be matched with the ideal loan type and lender from a selection, rather than the narrow range of consumer loans offered at a single retailer.
A longer loan term might have a lower interest rate, but remember you’ll pay more interest in total due to the length of the loan term.
If you take out a car loan make sure you’re clear on whether there is a fee for paying the loan out early, or for making extra repayments.
Depending on the the type of loan that you have, there could be a balloon or residual payment. This is a lump sum that falls due at the end of the loan term, so you’ll need to be prepared to save and pay it out if you intend to keep the car.
Balloon payments are most common for novated leasing or chattel mortgages, where the car is leased through your employer, or is used primarily for business.
The lump sum payment at the end reduces your total borrow amount, and decreases the interest on the loan.
If you put a cash deposit towards your car purchase, this reduces the total amount that you’ll need to borrow, once again reducing your interest payments.
For the most accurate car finance advice, speaking to a car finance broker and getting a personalised quote based on your information will give you an accurate idea of your finance options.