Negotiating the right car loan is almost as important as finding the right car for yourself. The interest that you pay on the car will make a huge difference in the longer term to the total cost of purchasing the car.
While you might negotiate with the car dealer to get a few hundred dollars knocked off the price of your new car, you’d be better off focusing on getting the lowest interest rate and best deal on car finance.
Getting a shorter loan term and a low interest rate can save you thousands on the purchase price of your car.
Cars inevitably depreciate over time, even if you get a great deal on a super-reliable model. This means getting the right car loan is more important than ever, as you don't want to owe more than the car is worth.
So where should you start? The first step to getting the best possible car loan is getting smart and knowing what your credit score is.
You can get a free credit check through several credit reference agencies in Australia, and you should do this before you arrange a car loan.
Knowing what's on your credit file will mean you know what to expect when you speak to a broker or a lender about getting a car loan.
When you get a car loan, the car can be used as security for the loan, provided it’s less than 10 years old. So even if you’re credit isn’t squeaky clean, you should be able to get a reasonable rate on a car loan with an alternative lender.
Perhaps the easiest way to get a credit check and recommendations for the best lender is to speak to a car loan broker.
When you make an enquiry with a car loan broker, they will do what’s called a ‘soft enquiry’, using their unique licence to find out your credit score without creating a record on your file.
Using this information, and some info about your residential and financial circumstances, a car loan broker will be able to recommend where you’ll be able to get the best car loan.
You might find that the broker recommends a bank you haven’t heard of, as the Australian finance market gets more competitive and specialist lenders often offer better options than the big banks. A car loan broker will give you some options, and answer any questions that you might have.
Once you have settled on a specific loan to apply for, then you can complete a loan application with a lender of your choosing. An application to a lender is only made once you've selected the loan that you want after comparing your loan options.
At Used Cars Adelaide, our staff have a strong background in car finance and access to a wide panel of lenders, and they can help you with quotes if you are interested in finding out about some car finance options.
By keeping your car loan term as short as you can, you’ll get a lower interest rate, but a higher monthly payment. This is a good thing, as it means that you’ll pay off the car much sooner, and you’ll also pay less in total interest for your car loan.
Keeping the loan term shorter means knocking thousands off the total purchase price of the car. It also decreases the chance that your car loan will end up being larger than what you could sell the car for at any point during the loan term.
If you’re only keeping the car for a few years, it also means you’ll own it outright before its time to upgrade. So it’ll be easier to sell it and buy your next car.
With car finance you’re often not required to put down a deposit. It is a good idea to do so if you can afford to, as it’ll reduce the total amount that you need to borrow.
When you put down a deposit towards your car pucahse, you'll pay less total interest, and also decreases chances of the loan turning upside down as the car depreciates.
As a guide, if you can put down a 20% deposit this puts you into a great position. However, even a small deposit it worthwhile when you’re buying a car.
‘Gap’ stands for ‘Guaranteed auto protection insurance’. This type of insurance can cover any gap left if you are in an accident, and your car is written off by the insurance company. The insurer holding your comprehensive insurance policy will pay out the current value of your car.
If the amount paid out by your comprehensive car insurance doesn’t cover your car loan, then Gap insurance can make up the difference.
This means that if you’re in a car accident, and you still owe $11, 000 on your car, if your insurance pays $9, 000, then the gap insurance will cover the remaining $2, 000.
If you think you might need gap insurance for your loan, ask your broker or compare some online quotes to find a good deal. Gap insurance shouldn’t be too expensive, and can be included in your loan.
Once you've had your car loan for 12-18 months, you might be able to refinance to a better deal, especially if you're credit wasn't great when you took the loan out.
If you do have a car loan you’ve had for a couple of years, and you’ve got perfect payment history, it might be a good idea to get a quote for a refinance to a lower rate.
Make sure you understand the fees involved, or you could end up paying more in fees and undoing the good you do by saving on interest. One other thing to be aware of when you refinance is that you don’t want to extend your loan term. This will also end up costing you more in interest in the long run.
Now you’re ready to get the best car finance that you can get, and you can start looking for a car knowing that you’ll get a good deal not just on your next car, but on the total purchase package.