Car Loans – A Beginner’s Guide
For first car buyers or people who are thinking about getting car finance for the very first time, looking for Car Loans might feel like a daunting task. After all, purchasing a motor vehicle is a big financial commitment. Not only do you have to find the right car, but also work out how you’re going to pay for it.
Chances are, you’re not going to have enough cash on hand if the car is a new one or relatively new, so you’re going to have to arrange finance. Being a first car buyer, you may not really know where to start or what to consider when it comes to Car Loans and finance. Well, this article is designed to be a guide that will help you to better understand your options, along with some handy tips on what to be mindful of.
At the end of the day, it’s all about finding the car you want and the right lender for you. So, start reading a beginner’s guide to getting a Car Loan and discover how they work.
Is a Deposit Required To Get Approved for a Car Loan?
While it’s not always the case, if you want to arrange finance for a car purchase through a dealer, generally they’ll want you to cough up at least a 10% deposit if you hope to have dealer finance approved. Some deals may offer zero money down just to get people in the door and buying.
Banks, on the other hand, usually don’t expect you to have a deposit when applying for car finance, although some may have this stipulation. Having said that, the more of your own money you can put towards the purchase of a car at the outset, the less you’ll need to borrow and the less money you’ll end up paying in interest. You’ll also be able to pay your loan out sooner and get out of debt quicker.
Having some money to put down also demonstrates to a lender that you’re serious about the loan and are more likely to be responsible when paying it back, should you be approved.
While you may not necessarily need a deposit saved up to attain car finance, it can be in your own best interests to contribute as much money to the car purchase as possible.
Should You Consider Car Dealer Finance?
Just about all car dealerships will offer you finance when you purchase either a new or used motor vehicle through them. Conveniently, this finance can be applied for right then and there at the dealership. While this can be a good thing, it can lead to making an impulsive decision on a car purchase, so don’t be pressured and stand your ground if you’re not yet ready to make a decision on either a car, or how you plan to pay for it.
While dealer finance options can often sound very attractive on the surface, you need to be aware of things like hidden costs that are not mentioned in the impressive sales pitch. Car dealers are not finance companies, so they’re acting as a third party, with the actual finance coming from a bank or some other lender. Generally, the dealership gets a commission for every car buyer they sign up for dealer finance. You could end up actually paying more than you need to, compared to other car loan options that are independent of the dealership.
A car dealer might also mark up the price of the car to compensate for not getting an outright sale. It does happen from time to time. There might also be a clause in the finance contract that states you’ll have to pay a penalty if you repay the loan early.
Dealer finance is generally fine, but you want to be aware of things to look out for before committing to a finance contract through a car dealership. If you’re in any doubt, don’t commit until you’ve had more time to look over the deal being offered to you.
It might be wise to go car hunting with someone more experienced, as they’ll be able to watch your back, so to speak, and also be far more likely to spot any red flags.
You’ll Need a Regular Income To Get a Car Loan
No matter who you approach for a Car Loan – dealer, bank, private lender – you’ll need to be able to demonstrate that you have the means to repay the loan through having a regular source of income. Without being able to prove this, it’ll be extremely difficult to find a lender who will give you approval.
Proof of income needs to be supplied as supporting documentation with your Car Loan application. For wage earners, this will be in the form of your most recent 2 or 3 payslips from your employer. If you work for yourself in your own business, then the lender will want to see some financial details about your business revenue supplied by your accountant. Sometimes, the previous year’s tax assessment can be used as proof of income for business owners.
Once again, if you’re not sure about anything, just chat with the lender for clarification.
Before Starting a Car Loan Application, Be Prepared
It’s not a difficult task answering the questions on a loan application. Most of them are very straightforward. The more organised you are before commencing the actual application process, the quicker and easier it will be.
Examples of the type of questions you’ll need to answer include:
- Your personal details (name, address etc.)
- Details about your income
- Your living expenses
- Current debts and obligations
Along with completing all of the required questions with the appropriate answers, your lender will need you to supply supporting documentation to prove your identity (e.g. Australian passport or driver licence) and your income (such as payslips). Possibly, some other documents might be required as well.
You Can Complete Your Car Loan Application Online
Chances are likely you’ll be able to complete the entire Car Loan application entirely online from the comfort of your living room. This saves a lot of time, is very convenient, and means you can do the applications at any time of the day or night; even when the lender is closed for business at the time.
In today’s world, just about all lenders – whether it be a building society, private lender or a bank – offer the online loan application option.
This can also help to speed up the processing of your Car Loan application, and even if you find you cannot complete all of the details in the first sitting, you’ll generally be able to save your incomplete application and come back to finish it at a later date. Also, supporting documents that are in digital format can be uploaded with the application.
Car Loan Eligibility – What’s the Criteria?
In order to successfully apply for a Car Loan, you’ll first have to pass certain eligibility criteria. This can vary a little from lender to lender. One part of the process is demonstrating you can afford to repay a loan within a specified time frame. To work this out, most lenders have calculators on their websites that give you a rough idea. They’re not an indication that your application would be approved, just a way of determining your borrowing power and loan repayments. At the very least, you’ll come out with a better idea of how much you can afford to borrow and repay each month over the course of the loan.
Let’s now take a look at the general criteria most lenders expect you to be able to satisfy before they’ll consider you for car finance:
- You must be an Australian resident or citizen
- You must be 18 years of age or above
- You need a regular income that doesn’t come from Centrelink
- Applicants need to be able to prove their identity
- And more…
As mentioned earlier, lending criteria can vary from lender to lender, but generally, the list above is required by all lenders.
Can You Get Finance To Purchase a Car In a Private Sale?
Obtaining finance to purchase a car through a private sale is not impossible. The deciding factor is often based on the car being a newer model. You may still be able to get pre-approval on a Car Loan. If actual car finance is not an option for private purchase, you could opt for a Personal Loan with a private lender instead.
Before committing to purchasing any motor vehicle, always be sure to do a REVS check first to determine that finance isn’t already still owing on the car in question. If you fail to do a REVS check, purchase the car and there is finance still owing from the previous owner, you could be liable to repay that outstanding debt as well.
Talk To Cashify About Car Finance Options
Cashify specialise in helping everyday Australians get behind the wheel of a new car. We can personalise loans to suit your requirements, so get in touch today to discuss your options with our friendly and knowledgeable staff.
Disclaimer: Please note this content is of general nature only and does not take into account your personal objectives, financial situations or needs. For advice tailored to your financial situation, it is advised that you seek guidance from an accountant or financial advisor. The information contained in this article is correct at the date of publication.