Whether you’re buying your very first car or upgrading your current set of wheels, buying a car is an exciting time.
You’ve probably spent a lot of time researching, comparing, and deciding on the right make, model and CC rating for your lifestyle. So, it’s just as important to put that much time into understanding, and getting the right loan for you.
Here are five things to check and understand before signing the loan agreement.
What’s the actual cost
The costs of a loan aren’t just the interest that you pay. Some loans have establishment fees, monthly fees, additional fees if you would like to receive a statement – and so on. Make sure you don’t just look at the interest rate when deciding whether the costs are acceptable to you and fit with your budget.
Having said that, securing the right interest rate is also very important. Make sure you research what different providers are offering, and of course, make sure your financial situation is as loan-ready as it can be.
Lenders calculate your interest rate based on your credit score. So, depending on your situation and how urgent your car purchase is, it can be a good idea to wait for a little while and focus on improving your credit rating (if needed) before shopping for your next set of wheels.
If you’d like to talk about your options, our friendly team will be happy to answer all of your questions.
The term
While the payments may be low and manageable for you, stretching your loan term too long also means you’ll be paying more interest over time.
Make sure you know how long you will need to be making your payments for – four or five years is a relatively long-term commitment. If you have the affordability, look to reduce the loan term, so you are paying off your loan quicker, and paying less interest overall.
Try using our handy loan calculator to estimate monthly and total repayments over various terms and rates.
Can I pay it back early?
Whether you earn a bonus or have a side hustle, chances are you might want to make additional payments, or pay off the loan completely before it is due.
Check the fine print, or ask the lender, if this can be done, and whether any penalties apply. Some lenders will charge you extra to pay off your loan more quickly, and those fees may offset the savings on interest expense.
Can you sell the car before the loan is paid?
It might not be long before your new ride needs to be replaced by one with more bells and whistles. Plus, over time your life changes, which may necessitate a different type of vehicle to match your lifestyle.
If you still owe money on a vehicle, this usually needs to be paid back before you can sell the vehicle with no ‘interest’ noted on the registration. Depending on how much you still owe, your lender may let you refinance what is owing on your current car into a new loan for your upgraded car.
What about insurance?
If you’re taking out a loan secured against your vehicle, the lender will require you to have insurance to protect their interest if something should happen to the vehicle.
The lender is likely to let you choose your own provider, so it pays to do your research. The monthly premium can vary quite widely across insurers and can quickly take your proposed car loan from comfortable to tight.
Unless the lender specifies otherwise, you will most likely need to take full cover rather than one of the cheaper third-party covers.
Like to know more?
If you are looking to finance your next car and want to know your options, please get in touch. We’re here to help you understand your options, and help you get the car loan that is just right for you.
