For many, purchasing a new car, or even a used car, is the second biggest purchase they’ll make next to buying a house. That makes it a big decision when it comes to both choosing what type of car to buy and how to pay for the purchase.
Most people won’t have enough cash on hand to buy a car outright and will need to finance the purchase. But when it comes to getting a Car Loan, many don’t know where to start. In Australia, there are so many options it can get confusing. In this guide, you’ll discover some handy tips and advice when it comes to Car Loans, including what to look out for and how to choose the right lender for you.
Be Aware of the Pitfalls of Car Dealer Finance
It doesn’t matter whether you want to buy a brand new car or a quality used model, if you go to a dealer, most will have finance deals available on-site. Now, while some of these deals can sound extremely attractive, some can have hidden costs.
For starters, dealers don’t own finance companies. The way it works is they make a deal with a finance company, and when someone purchases a car through dealer finance, the dealer gets paid a commission. Therefore, the purchaser is actually paying more for finance.
The second way costs can be increased when going the dealer finance route, is the car dealer will often mark up the price of the car to compensate for not getting an outright sale. This isn’t always the case, but it can happen.
It’s also not uncommon for there to be a penalty if you pay out the loan early when taking up dealer finance.
While these pitfalls may not be a dealbreaker to finance with a car dealer, it’s important to be aware of what is involved so there are no nasty surprises. Never make an on-the-spot decision. Carefully study the dealer’s terms and conditions first before making a commitment to purchase a car with dealer finance.
Do You Need a Deposit To Get a Car Loan?
If you’re arranging finance through a dealer, you’ll generally need to have a deposit of at least 10% of the car’s purchase price to be approved.
On the other hand, if you approach a bank or a private lender for a Car Loan, a deposit is very unlikely. It will however certainly help your application get approved if you can demonstrate an ability to have saved for a deposit. It also shows you’re more serious and capable of repaying the loan.
When you do have a deposit saved up to put toward your vehicle purchase, it’ll save you money on interest. The bigger the deposit, the less money you have to borrow and the less interest and ongoing fees you’ll need to pay over the course of the loan terms. Therefore, it makes sense to try and save up a deposit first before approaching a lender or a dealer for car finance.
You’ll Need Proof of a Regular Income
When you fill out a Car Loan application, you’ll need to provide supporting documents that prove you have a regular income, and therefore the ability to be able to repay the borrowed amount, plus interest and any associated fees attached to the loan.
If you’re employed, often you’ll be asked to provide the most recent 2 or 3 payslips to prove your income. If you are self-employed or run a business, then financial details provided by your accountant will generally be required. If you don’t have an accountant, talk to your lender about what you’ll need to provide them with if you’re a business owner.
Car Loan Applications Can Be Done Online
One of the advantages of applying for a Car Loan or Personal Loan to purchase a car with a private lender, as opposed to a bank or car dealer, the application process can be done entirely online in most instances. This is really convenient, as it means you can fill out the application at any time of the day or night, either from home or wherever you happen to be located at the time.
Often, you can save the progress of your application and complete it at a later date if you find yourself out of time for some reason, or realise you need to do further research to complete your online application.
Get Organised Before Starting Your Application
It’ll be a lot quicker and easier when you fill out your Car Loan application if you have everything organised before you start. There will be questions to answer regarding your personal details, income, expenses and so on, so have your answers ready. You’ll also need to attach things like copies of your ID to prove who you are, supporting documents to prove your income and, depending on the lender, possibly some other documents as well.
Very likely you won’t have to even go and visit the lender’s premises, as all supporting documents can be attached with your online application. This saves you time and the hassle of even having to leave the house.
How To Check Your Car Loan Eligibility
One way you can get a rough idea whether you might be eligible for Car Loan approval is to access one of the handy calculators most lenders have on their websites. These calculators allow you to input the amount you wish to borrow and how long you would like to have to repay the loan. An estimate of weekly, fortnightly or monthly repayments will then be calculated.
Now, this is not an indication that your loan application would be approved, but at least you’ll be able to determine whether you could afford the repayments.
Another option is to check your borrowing power, which is a similar calculator to the one mentioned above. It gives you an indication of how much you can borrow based on your income and expenses.
- Thirdly, each lender will have a list of criteria that prospective borrowers need to match up with. Some common essentials will be things like:
- Must be 18 years or over
- An Australian citizen or permanent resident
- Have an income that’s not primarily from Centrelink
- Be able to prove your identity
- And so on…
The criteria of each lender is not identical, so be sure to check their requirements first, to see if you’re eligible before applying for finance with a particular finance company.
Secured Or Unsecured Car Loan?
When you go to apply for a Car Loan, you’ll have 2 options:
- A secured loan
- An unsecured loan
Which should you choose?
Secured Car Loans usually have lower interest rates than unsecured loans. The reason being is that there is less risk to the lender with a secured Car Loan. When you take out a secured Car Loan, the car you purchase is used as collateral against the loan. If you don’t repay the loan, the lender can repossess the car.
Unsecured Car Loans are less risky for the borrower, but will likely attract higher interest rates and possibly more loan fees as well.
Many people opt to get an unsecured Car Loan as it’s less hassle, there’s no risk to your property and you can choose the amount you’d like to borrow and not be limited by your asset’s value.
Shop Around For a Good Deal
Car finance is a very competitive business and deals are constantly changing. Before tying yourself to any particular lender, you’ll want to shop around. First, determine what kind of Car Loan deal might suit you best. You’ll also need to have a fair idea of how much you wish to borrow, as lenders have different minimum and maximum lending amounts.
If you go online, there are quite a few comparison websites that allow you to compare lenders at a glance and see what their latest interest rates are, as well as any loan establishment fees. These websites can save you a ton of time when it comes to research, but don’t rely on comparison sites alone. If you find a lender you like, dig deep into their website and check out all their eligibility criteria, as well as their terms and conditions.
What If It’s a Private Seller?
If you’re purchasing from a private seller and not a dealer, your best option may be to apply for an unsecured Car Loan or Personal Loan with a private lender. This way, you don’t need to worry about using your newly purchased car as collateral or whether or not the lender will approve of private sellers. You are also likely to have your loan approved quickly and in some instances, the cash transferred into your account the same business day, so you can make your car purchase sooner.
Talk To Us About Your Next Car Loan
If you’re looking for an excellent deal on a Car Loan, get in touch with the friendly team at Cashify. We focus on fast approvals, short-term finance and specialise in offering the best deals to our valued customers.
Before approaching anyone else about motor vehicle finance, give us a call and have a chat about your requirements.
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.