Car loans are a great option for those wanting to buy a vehicle but unable to afford one without financial assistance.
Applying for a car loan can be a big financial commitment, so it pays to read your contract thoroughly and discuss it with your broker before signing.
If you can’t afford to buy a car outright, a car loan can help you finance one. A car loan requires you to pay back the money borrowed within a set period (the loan term), in either weekly, fortnightly or monthly amounts.
Car loan repayment amounts are calculated based on the amount borrowed, loan term, interest on the loan and any fees charged. A car loan calculator can be a useful tool to get a guide to what your repayment amounts will be.
There are numerous aspects involved with loan repayments, including the frequency, the amount, the interest rate and the loan term. It’s important to understand your car loan repayments to ensure you can afford to keep up with repayments, and what it means if you can’t afford them or you miss a repayment.
Car loan repayments can usually be paid in weekly, fortnightly or monthly instalments.
Choosing your repayment frequency may depend on your budget and income. You want to ensure you can make your repayments, so you need to understand how much you can comfortably afford to pay each week, fortnight or month.
Repayments need to be made within the agreed loan term. This can vary from 12 months to five years or more, depending on the total amount of the loan and the lender of best fit.
Your repayments will also incur interest at a fixed rate, with a comparison rate included which encompasses all known fees and charges.
In addition to paying back the amount you borrowed, you will be charged interest on the balance. This means in addition to repaying the initial amount, you are also making interest repayments on a weekly, fortnightly or monthly basis.
The interest rate you pay may be determined by several factors, such as the age and value of the car you’re planning to purchase, the lender’s criteria and your credit score.
A fixed-rate car loan means the interest rate is locked in for the duration of the loan term. This can make it easier to budget for the interest on your car loan, as you know this amount will never change.
It’s important to understand the interest rate you will be making with your repayments and trying to find the best rate you can, as this can ending costing you a lot of additional money.
Check for any additional fees
When considering your car loan repayments, make sure to check for any additional fees. This could include fees and charges for late repayments, or making extra repayments. A comparison rate includes all known fees and charges, so check the comparison rate offered with your car loan.
If you want to be able to make extra car loan repayments during your loan term, you should check upfront if this will incur additional fees or an early termination fee if you want to pay off your loan before the end of the loan term.
For some car loans, you may be able to reduce your monthly repayments if you pay a one-off lump sum, or balloon payment, at the end of the loan term. However, it’s important to consider whether the total repayment amount on the car loan will be higher with the balloon payment.
Always check with your provider to see what additional fees and charges may apply for your car loan.