Car loans: How to avoid a bad one

It can pay to understand some of the common mistakes people make when seeking finance to buy a car. These 5 tips may assist you from making the same mistakes.

1. Make sure you calculate what you can really afford

It’s important to understand your own current financial situation before you speak with a Lender or a Broker. This means considering your current debt and financial commitments, and any potential future purchases you are looking to make (eg. buying your first home or property), and how this will affect what you can contribute towards your car loan.

You also need to consider other costs associated with buying a car including registration, insurance, stamp duty and other ongoing costs such as petrol, servicing and maintenance.

Look at what you know you can afford to contribute to your car loan each month after all of these other costs have been factored in.

2. Consider the overall cost of the car beyond just the purchase price

In addition to negotiating the best possible price for your car, you should also consider the interest charged on your loan over the longer term.

Whilst the loan will help you purchase the car, there are options to reduce the interest charged on your loan over the longer term.

A loan over a longer term may reduce your monthly repayments, however you could end up paying more interest. Whereas if you take a shorter-term loan, your repayments may be higher, but you’ll pay less interest.

So, make sure you consider the overall cost including the purchase, interest payable and fees.

3. Not doing your research

It’s really important to conduct do your homework before buying a car.

Make sure you really understand the type of car that will suit your needs, read up on it, and seek expert advice.

Establish an understanding for how it will serve your purpose, it’s fuel economy, reliability and safety. There are credible car sites with expert advice which will assist with your research.

4. Consider a pre-approval of your car loan

It may pay to obtain a pre-approval before you start looking for your ideal car. This means you can shop and negotiate with confidence as you’ll have clarity over what you can and can’t afford.

A pre-approval will typically be available for up to 3 months, depending on the lender, so you’ll need to take this into account.

5. Consider a down-payment

If you have a deposit saved for your car you may want to consider a down-payment. By making a down-payment this will reduce the amount you’ll need to borrow and also your monthly repayment, which means you’ll also pay less interest.

If you would like to arrange an appointment to talk to us about a car loan or obtaining a pre-approval, call us on 8300 8300 or have a chat to your Mortgage Broker.

*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone’s personal situation is different, this article should not be taken as advice. We recommend you seek individual advice with a mortgage broker.