Owning your first car is not only exciting but convenient as well. Whether you are a student or you just got a job, you surely want to know how to get the funds to purchase a car.
The good news is that you can turn to a car loan, which is an excellent financing option. It works just like any other loan where you borrow money, which will essentially cover the car purchase. After a certain period (based on your agreement with the lender), you will have to repay the borrowed money. Aside from the amount you received, you also have to pay the interest and other relevant fees.
There are a few important things to do before anything else if you are planning to finance the vehicle. Here are some tips for scoring a car loan and owning your very first car successfully.
Your Credit History
When you do not have the money to pay for the car up-front, it does not mean you cannot buy it. The best solution is to go to a lender and apply for a car loan. Before you do, however, make sure your credit history is in good shape by checking your credit report. Although some lenders may be forgiving, your payment history on other loans and bills will determine the success of the application. Even if you do get approved, you will have to pay a high-interest rate on top of your loan.
But the good news is that having a bad credit history doesn’t mean there is no hope. You can re-establish your rating if you change your payment habits for the next 12 months or so.
Car Loan Options
Car loans come in various sizes and shapes. Going for the right loan is the key to the success of the process. Therefore, before you even apply, you should know what types of loans are available. This way, you can compare them side by side. Here are the most common types of car loans to choose from:
- Standard LoanThis type of loan pertains to the most traditional way of borrowing money from organisations. Basically, you go to a bank, credit union, or any financier. Then, you apply for the loan so you can buy a new or used vehicle.A standard loan is the simplest of all types. However, the most crucial requirement is that you are financially sound and willing to shell out a few extra cash.This loan can either be secured or unsecured. Most of the time, lenders offer only a secured loan where the security for the loan is the car.
Should you choose this loan? Take a look at the benefits below:
- Low-interest rate (either variable or fixed) for secured loans
- Usually comes with affordable monthly payments
- Flexibility for repayments
- May cover on-road costs
Although this type of loan is common, it can be challenging to get approved unless you have a good credit background. Also, if the lender allows you to get an unsecured loan, be prepared for the high-interest rates.
Commercial Hire Purchase
Another type of car loan is where the lender buyers the car for the consumer who can then use it for a set period. Although the name is “commercial hire,” this loan is both for businesses and individuals. You will have to pay for the loan for an agreed number of months. Once the loan is repaid, the ownership of the vehicle will be transferred to you.
Among its benefits include:
- Fixed interest rates and repayments
- Modifiable based on your budget
- Allows financing of the full price of the auto
- Flexible and can be paid in the form of a trade-in or deposit
- With a low capital outlay
- No GST
At a glance, commercial hire purchase loans are attractive. However, it is not usually recommended to beginners unless you have the upper hand in negotiations. Try to visit the financier or dealer at the end of the time. It is often when hitting sales targets becomes more important than ever. You could even score some bonuses to make the offers more appealing for you.
- Novated LeaseIf you are an employee, you can get a loan through your employer. Also known as “salary sacrifice,” your employer will directly lease the car from the lender. It is a three-way arrangement where your wage will be reduced each month over a given period while the employer pays the lender for the loan.This car loan offers a few benefits, including:
- The ability to purchase the car after the lease period
- Includes pre-tax income
- Can select the preferred vehicle
You may get approved for this loan easily because it does benefit your employer, too. It is a simple method of boosting remuneration packages of employees.
What to Look for in a Car Loan
Loan types vary greatly, but not all of them will fit your case. A fixed loan agreement is often what many consumers look for. It helps to shop around first before you start an application. Compare the different available loans so you can determine how much you can spend, the interest rates you are willing to pay, and the total repayments to make.
Car dealerships will often provide you with add-on insurance, including loan protection and gap cover. Usually, these extras are not worth the price, so do not feel pressured to add them to your purchase. Compare these features to find out which has the best offer:
- The total cost of the loan
- Interest rate
- Application fee
- Other fees, including the price of the monthly service and default or missed payments
Some loans allow you to make extra repayments without including a fee. This feature allows you to shorten the duration of your loan without incurring more costs. Consider the loan term as well. Shorter terms tend to have a much lower interest rate than loans with longer periods. However, you may benefit from a longer-term loan if you do not have the money to repay it right away. Be aware, though, that you will end up paying more interest.
The loan conditions also tell you if you have a good offer. Some loans only allow second-hand or used cars. If you want to buy a new car, read the terms and conditions first.
Are You Eligible?
Lenders have a point-score system, which will enable them to know your repayment capacity. It takes into account whether you are single or married, your income and disposable income, and employment details.
If you are a student, you can get a car loan as long as you meet the eligibility requirements of the provider. Some of the most common conditions are:
- You should be at least 18 years old
- An Australian citizen or at least a permanent resident
- With a stable job or regular income source
Unfortunately, many lenders turn down applications of those whose primary source of income is Newstart, Austudy, or Youth Allowance.
For non-Australian citizens and international or exchange students, it can be difficult to find a car loan. You will need to check with the lender directly, especially if you have any type of visa, including student visa.
How to Apply for a Car Loan
Once you have decided on the loan you want and your eligibility, the next step is to apply to the lender. Compare the options first, so you do not end up sending multiple applications. Doing so does help increase your chances of getting approved; however, you could hurt your credit score.
Talk to the lender where you want to apply for a car loan and find out the requirements. Have the documents ready, which include:
- Employment with your recent payslips
- Finances, including expenses, existing debts, and income
- Car details, including make, model, and year, purchase price, and registration number
- Contact information and proofs of identity
Buying a car also includes other expenses, such as registration, insurance, and stamp duty. You will find lenders that cover the car purchase and some of the costs mentioned. However, it is always better to pay for them upfront as much as possible. It helps lower the amount you need to pay for your loan and save on the interest as well.
If you’re ready to get a car loan, talk to Loans Unlimited today, we can offer excellent rates and manageable payments to help you secure your new wheels!