Car loans can be a great option for people who need help buying the car they need. It offers a more affordable way of purchasing a vehicle sooner.
Before applying for a car loan, you need to understand what’s involved, from regular payments, to any additional fees. This helps ensure you get the right loan for you.
Here are five things to know before applying for a car loan.
How much your payments are
Before signing the paperwork for a car loan, make sure you understand what the repayments will be.
Calculate the costs involved before securing a car loan, as you need to be able to keep up with your regular repayments.
A car loan calculator provides you with a guide on the repayment amounts and interest you need to pay based on the loan total, term period and the repayment frequency (monthly, fortnightly, weekly). This can help you work out what fits within your budget to ensure you can afford your repayments.
As well as the car loan payments, make sure you budget for the ongoing costs that come with owning a car, including fuel, registration, insurance, and regular maintenance and servicing.
Fees and conditions of the car loan
Make sure you understand the fees and conditions associated with the loan before signing on.
As well as your loan payments, you need to know about any fees involved with your car loan. These may include an establishment fee, which is a one-off fee when you accept the loan, and ongoing fees, also known as service or administration fees, which cover the cost of maintaining your loan.
If you’re able to make additional payments or early payments, this can help you save a lot of money in the long run, so check if your loan allows you to do this, or if there are charges involved. Some loans have an exit fee if you pay off your loan before the term period ends.
If you want to make early repayments, you don’t want to pay fees that may cancel out any money saved with your early repayments.
Car finance options
There are many car financing options available, from car loans to novated car leasing. Car loans come in many shapes and sizes and it’s important to compare the different ones available to discover which is better suited to your needs.
Interest rates will vary across lenders and car loans. Try to get the best rate you can, as interest can add a significant amount to the total cost of the loan.
Car loans can be used for new or used cars, and a range of vehicle types, whether you’re looking for your first car or upgrading to a family SUV or 4×4.
Getting advice from a finance specialist can help you find what car finance option is best suited to your needs and budget.
Loan term is important
Loan terms can vary, and it’s important to work out what is best for you. Something to know before applying for a car loan however, is that it’s generally best to get a shorter loan term.
The term of your loan is an important factor to consider, as the longer your loan term, the more you end up paying in interest over the total.
If you’ve never had a car loan before, you may be concerned about choosing a loan with the lowest repayments, and while this can be good, sometimes this means you have a longer loan period in which to pay back your loan. Ideally, if you can afford it, you will want a shorter term with low interest rates.
To help you determine a loan term that is suitable for you, work out your budget and forecast how much you can afford to pay. Always try to get the shortest loan term you can, it will help save you money in the long run.
Credit score impacts your car loan
Something to understand with car loans is that your credit score can impact the rates you’re able to get. Knowing your credit score helps you establish where you stand when applying for a car loan.
The criteria used by lenders can vary, but many car loan rates are determined by the potential risk, so you will likely pay a higher interest rate if you are perceived as a higher risk. If you have a bad credit score, it is likely that the lender will give higher interest rates, whereas if you have a good score, the likelihood of being able to negotiate a better deal will increase.
You can find out your credit score, though keep in mind, you don’t want to do this numerous times because this can actually impact your score. When lenders check your credit score, it slightly decreases, so you don’t want it to be checked too many times.
If you have a bad credit score, you can work to improve it by doing things like paying off existing debt and making payments on time.
If you’re considering a car loan, our 360 Finance specialists can help find the right one for you.