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BSB 806 015

Car loan guide

A guide to choosing the right car and finance for you.

The purchase of a new car is often one of the biggest purchases we make besides a buying a home, and many of us just don’t have the cash to buy the car we want outright. There are multiple options available to help finance your purchase, and it pays to be aware of them so that you can make an educated decision. If you’re wanting to know what to look for when searching for the best car loans available, there are a few things you need to decide on first.

Personal loans

To start with, you could look at a traditional car loan. You’ll find these offered through most banks and credit unions, and you can apply for loans to finance new and used cars, motorbikes and other vehicle types. It can also be worth considering the costs of getting your car on the road when looking at your loan amount so you don’t fall short, and if the loan is funded, you will have to maintain a minimum fortnightly or monthly repayment over an agreed period. Often the interest rates can be better if the loan is secured against the vehicle, so your eligibility for a better rate could also depend on the age and condition of the car.

If you’re not eligible for a secured loan, an unsecured personal loan could still be an option available to you. These typically attract a higher interest rate and you will need to have a solid credit history, however it would be best to have a discussion with a personal lender to find out what will work best for you.

Other lending options

You could also consider a hire purchase agreement. In this case, the dealer or other entity that provides the finance would buy the car and then hire it out to you. Monthly payments will be agreed over a set period, and once you have paid them off, ownership of the vehicle will be transferred into your name. Sometimes you can negotiate lower monthly payments and a lump sum or “balloon payment” at the end of the term. Generally, no GST is payable with this type of arrangement.

If you’re planning to use the vehicle for business purposes, then you may be able to get a car finance lease. These will carry fixed, monthly repayments which could be tax deductible depending on your circumstances, but in this case, you will have to pay GST. The finance is secured against the car which will helps to keep the interest rates lower and at the end of the lease, you can return, refinance or buy the car outright for the agreed, residual amount.

Some lenders will cover 100% of the cost of a new vehicle when you take out a commercial loan. However, this may only apply to new vehicles, and you may not be able to consider cars or trucks that are more than five years old.

Budgeting

Before you begin to look for a car and talk with potential lenders, you will need to understand your budget. You may have money to make a lump sum payment towards your purchase, but you will need to factor in making regular fortnightly or monthly loan repayments when assessing your budget also. If you can make extra or lump sum repayments during your loan term this can reduce the amount of interest you pay and you can get the loan paid off sooner.

Try to make sure that you can comfortably meet your regular repayments so that you don’t find yourself too stressed if your circumstances change or if an unexpected bill pops up. It’s essential for you to keep on top of your repayments from a credit rating perspective and, of course, so that you can keep your car.

New or used car

You need to decide whether you are buying a new or a used car as this may affect the type of loan you can get. You may be able to get lower rates with a new car, however a used car is likely to cost less and that normally means a shorter loan term.
One of the up sides to buying a used car is that you can benefit from lower depreciation rates compared to new cars, which means that the vehicle should retain more of its value as the loan goes on.

Car or motorbike

If you’re more into two wheels than four, then you may want to look at motorbike specific loans. Some lenders offer these and they tend to be easier to pay back as the value of a new motorbike is lower than the typical new car. You may be able to attract a low interest rate and if you do have a deposit to put down against the purchase, your schedulled repayments will be less.

Other things you might be wondering

Can car loans be included in debt consolidation loans?
From time to time, people can get overwhelmed with their finances and seek financial products that will help them to manage more effectively. In this case, they may “lump” all of their borrowing into one debt consolidation loan. You may be able to include a car loan in this type of arrangement, but you should remember that this will possibly be an unsecured loan.

Do car loans have interest charged monthly?
Typically interest will be charged monthly on a car loan, but this isn’t always the case and it depends on the company that you arrange finance through. You may be able to negotiate different terms with your finance company, but for major banks and credit unions your interest charges will be outlined in your contract.

Can you get a car loan with bad credit?
You may be able to qualify for a car loan even if you have bad credit as there are some financial products on the market that cater for this situation. These are more likely to be associated with a used car purchase, and there is a possibility that the interest rate will be higher. Ultimately, it is up to the lender to assess your financial position prior to making a final decision.

Are motorbike loans the same as car loans?
While you may be able to get a loan to help you purchase a motorbike instead of a car, they are not generally considered to be one and the same. Lenders may apply different criteria to a motorcycle loan versus a car loan, and unless you get formal consent from your lender, you’re likely not be able to use money intended for a car loan to buy a motorcycle.

Can you make extra payments on a car loan?
Whether or not you’re able to make additional payments to your car loan depends on the rules applied by your finance provider. If you are able to, it would lessen the amount of interest paid over the lifetime of the loan. Make sure you look at the small print first or ask your financier if this is possible in your case, should it be something you may be interested in.

What documentation may be required when applying for finance?
Requirements will vary, but you will generally need to provide three months of bank statements, two current pay slips, a utility bill in your name, a method of identification and information about other existing liabilities. There may be some additional documents required, however for more information you would need to consult a personal lender.

So, in a nutshell...

There are multiple options available to help you purchase your dream car, or the next best thing. Make sure you’re realistic with your expectations and do your homework before you apply to make sure you’re taking up the finance option that best suits your needs and circumstances.

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