Most Australians spend a lot of time debating which car to purchase rather than giving much thought to the financial side of the process. As a result, they end up on unfavourable terms.
1. Your Credit Score
Let’s face it. A credit score is that three-digit daunting number with a stronghold on your lifestyle. Especially when it comes to buying a car, therefore, like everyone else, we’ll advise you to check your credit score before you start test driving the new Mercedes model.
Your car loan approval depends on it, so it’s best to get your credit score out of the way before you break down to your kids that you are getting a new car. You might have trouble getting a car loan with bad credit. But services like C1 Car Loans can help you out.
2. Loan Term
The loan term is your promised time to repay the loan in full, including the interest rate. It is usually represented in months such as 60 or90. Typically, car loans are from 12 months to 96 months. However, the loan term depends on your payment criteria, lender, car make and model and the interest rate you agree upon.
Remember, the longer your loan term, the less you have to pay per month, but the higher the interest rate. Therefore, you pay a substantial amount in total by the end of your loan period.
Set your loan term based on your current financial position, not the future. Many Australians make the mistake of committing to high premiums because they anticipate an increment or promotion. However, they have to cut back on their lifestyle to afford their loan amount when they don’t get an increment.
3. Down Payment
Down payment is your chance to save yourself from excessive interest payments if you have a bad credit score. However, there aren’t many people in the “super-prime” credit score category to secure surprisingly low interest rates.
Therefore, many Australians prefer making a large down payment to bring down the amount they request from the bank. When the borrowed amount is greatly reduced, the cost of your loan decreases with it.
4. Early Payment Penalty
Many borrowers plan on borrowing for a short time to meet their financial deficit when buying a car. They assume they’ll pay the loan in full when they get a promotion or increment. While this might seem like a feasible plan, a lot is going on with a car loan you aren’t aware of.
For instance, if you try to repay the loan before your term ends, you’ll be subjected to early payment charges because the bank loses out on the interest it was about to collect. Therefore, early payments aren’t the best option. However, if you are on good terms with your lending institution, you can request a no-early penalty loan. But it’s highly unlikely you’ll get a car loan that way.
5. Get a Car Loan Pre-Approval
Getting a pre-approval on your loan is the best way to go. It’s more fruitful than going the other way around, that is, eyeing a car and then applying for a loan. Plus, pre-approval can give you a better chance of negotiating a deal with a car salesperson because you have cash in hand.
In addition, you’ll know your financing amount. Therefore, you’ll shop within your budget and waste little time. Pre-approvals also help you narrow down your list of choices by eliminating cars you can’t afford. So the process of buying a car is streamlined thanks to pre-approvals.
The Bottom Line
We all dream of owning a sports car, but our limited finances get in the way. Getting a car loan is the best way to buy a car when you can’t afford the full payment. But there are many factors to consider before getting a car loan. The tips mentioned above are a good place to start car shopping.