Financing a car rather than paying cash may seem like a good option for some. For example, perhaps you need a new car, but you don’t want it to conflict with a lucrative investment opportunity.
Taking out the right car loan means you keep your savings account in healthy shape as you won’t need to withdraw thousands of dollars to cover the principal, registration, and applicable taxes.
Also, if you’re trying to build up your credit score, a car loan can help you establish a favourable history so you can eventually get the best terms the lending industry has to offer.
If you’re ready to take a few test drives, consider the following seven factors before you start talking numbers.
The purchase price of a car isn’t necessarily what’s posted on the sticker. In the past, finding out what the dealer paid might be a challenge, but the internet has made it simpler to see if you’re getting a decent deal.
Independent pricing guides and resources are everywhere today, and they can be invaluable for buyers who have a specific car in mind. In fact, you can pinpoint a vehicle to its vehicle identification number (VIN) before you head out to a dealer or a private party to start the negotiations.
As you think about the price of the car, you should also be thinking about your future. If you’re getting married in the next few months, it may make more sense to spring for a vehicle with some extra space for your future family.
Interest rates are like the telltale heart of any loan, and they can be tricky. New buyers may not realise that even tiny fractions can spell thousands of extra dollars over time. High rates mean you’ll be paying your loan off for longer. By the time you add up how much you spent on the car, you may not be pleased with the end number.
You want to look for interest rates that are the best in the market. A Shore Financial expert can help you find the best options.
Your credit score helps lenders assess your capacity to pay your bills on time and determine how much they will lend you. Sometimes, it may also influence the interest rate you will be paying.
While you may not need to pay off the car with cash immediately, you should consider making a substantial down payment.
Putting down at least 20% means lower payments and less interest over time. Instead of paying 5.49%* on $23,000 car, you’re paying 5.49%* on $18,400. Over the course of a 5-year loan, you’ll save a few hundred dollars just for a little extra upfront cash. Lenders are also more likely to approve your application at better terms when you put down more money.
*The car loan rate is commercial finance, speak with your broker for more information.
Down payments also help you stall the inevitable depreciation of your car. A new car can lose up to 25% of its value in just a year, and bigger down payments offset just how much you’ll lose in depreciation. It means you won’t be upside down on a loan (or the unenviable position of owing more than the car is worth).
Car loans can span in length from two to seven years. The rule of thumb is the shorter the loan term is, the lower your interest rates will be. The higher your payments are and the lower your interest, the less you’ll pay on the car overall.
Unless you have lucrative investment needs that take precedent, you should base the tenure on what you think the car is worth in the long run.
We can’t stress enough that every loan is different, a fact that can easily escape even the well-trained eye. Because those terms and conditions are written in exceptionally fine print, you need to be extra aware of additional fees and penalties baked into your financing agreement.
For example, you may be charged a set amount if you pay off your loan early. Your lender may also include any number of charges to the loan that are essentially a way to make up for a low-interest rate.
The competition in the country has made car affordability exceptionally reasonable for buyers today. Even with these benefits though, there’s a trend amongst Australians to use their home loan as a way to finance their car.
Because car loans have higher rates than home loans, the idea is to forfeit some equity in the home to fund a new car. It also means having one loan to keep track of, which can greatly streamline the bill-paying process.
As long as you’re not planning to get rid of your car in a few years, financing can make sense for car buyers today. If you have questions about the right car loan for you, Shore Financial can help. Our experts are here to spot the details of a car loan and point you in the right direction. Contact us today to get started so you can find the perfect vehicle for you.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.