fbpx
1300 416 700
Home Loan Types The Team Calculators Learning Our Difference Get in Touch
Miscellaneous

7 Things to Consider Before Taking a Car Loan

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.

Look at Purchase Price

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. 

Master the Sydney property market with leading industry insights and market trends straight to your inbox

Helpful Tools

Choosing a home loan is one of life's big decisions. We get it.

Start planning your next move using one of our handy calculators.

Check the Interest Rate

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.

Improve Your Credit Score

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.

Make a Down Payment

Couple with newly purchased car using car loan

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).  

Consider the Car Loan Tenure

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. 

Ask about Potential Penalties

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. 

Refinance

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. 

Conclusion: For the Long Drive

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.

Learning

Related Articles

Miscellaneous

How To Get Your Property Ready For Rentals

16 Mar 2021
Miscellaneous

Extended Repayment Holidays: All You Need to Know

17 Aug 2020
Miscellaneous

How Medical Professionals Can Get Ahead in the Property Market

21 Feb 2020
Guides
Miscellaneous

School’s Back! 6 Tips to Managing School Fees and Expenses ...

21 Feb 2020
Market Trends
Miscellaneous

How Fintech Is Disrupting the Mortgage Industry with Intelligent Credit ...

9 Dec 2019
Guides
Miscellaneous

Your Ultimate Checklist for Taking Out a Commercial or Business ...

6 Dec 2019
Miscellaneous

7 Things to Consider Before Taking a Car Loan

14 Nov 2019
Miscellaneous
Purchasing

How referrals from real estate agents can help a buyer ...

21 Feb 2019
Miscellaneous

Shore Spotlight: Senior Credit Adviser, Nick Jacobs – The Adviser’s ...

21 Feb 2019
Miscellaneous
News

Shore Financial ranked #4 in The Adviser’s Top 25 Brokerages for 2019.

21 Feb 2019
Miscellaneous
News

Shore Financial nominated for three awards at Best Business Summit

5 Feb 2019
Miscellaneous
News

Awards recognise the strength of the Shore Financial team

23 Nov 2018