No matter if it’s new or used, shopping for your next car gets the endorphins pumping. But don’t let the excitement take over – it’s time to focus on the details and organise finance for your purchase. Read on for some of the key things to consider.
Work out your budget
It may sound obvious, but to make sure your new car is within your affordability range, you need to think about your short and long-term situation. How much can you comfortably afford to spend each month in loan repayments? And how much in total? How would these costs affect your other goals?
Sit down, take a moment or two, and try listing all of your monthly expenses. Make sure all budget items are listed, including power bills and petrol. This little exercise should give you a clear picture of your budget, and how much you can allocate to a loan each month.
But it’s also important that you don’t overlook the total amount you will pay over the lifetime of your loan. A long-term loan on an expensive car may work with your monthly budget, but are you sure you want to pay that extra cash over time? Will this get in the way of other priorities?
Understand and compare the interest rates
As with most purchases, finding the right finance for your needs requires a good deal of comparison. Know what the different lenders are offering and the different factors that determine car loan interest rates, for example – credit history, living and work circumstances. Do some initial research and then be proactive in your interest rate negotiations and run the rates offered by other lenders through our car loan comparison tool here.
Resist the temptation to spread it out
Longer-term loans can be hugely tempting, as they allow you to reduce the monthly repayment amount. But there is a downside – the longer you have your car finance for, the more you will pay in interest. If you can afford a shorter-term loan – for example two years instead of three – it can be a good idea to seriously consider.
Forewarned is forearmed
Before you sign, make sure you have seen and understood all fees and charges. Ask your lender to provide full and transparent disclosure, and clarify any questions you may have.
Pre-approvals make sense
Rather than scrambling for finance after finding a suitable car, pre-approved car finance can save you time – and potentially, money. It allows you to properly assess what you can afford before you start the car hunt. Plus, with more time on your side, you can focus your energy on negotiating a price within your budget.
What if your application is declined?
Of course, having a car loan application declined can be disappointing. However, if this happens, keep in mind that with a bit of work today’s decline can turn into an approval in the future. Ask your lender why the loan was declined, and what you can do to fix it. Then, weigh your options carefully before making your next move, and don’t rush it. Having too many applications recorded on your credit history may negatively affect your chances in the future.