How does Financing a Car work?
There are a variety of different lenders offering car finance products to suit your needs and your budget.
Vehicle financing can be charged at a fixed interest rate or at a variable interest rate. Some lenders will allow you to set up a repayment plan that is flexible and offers a low-interest rate. Some offer balloon payment arrangements that allow you to make smaller monthly repayments with a large balloon payment when the loan comes to the end of its term.
Some lenders allow you flexible payment options so that you can make payments whenever you can and you are able to make more than the minimum monthly repayment.
Car loans work in the same way that personal loans do with the difference that the vehicle that you are purchasing becomes the collateral to secure the loan. Some offer an unsecured car loan so that you don’t have a risk of losing your vehicle, however, this type of loan come with a much higher interest rate. A car loan can range between $1,000 up to $100,000 with repayment terms of up to 10 years. The type of loan that you are offered will depend on your affordability as well as the condition of the vehicle and if you are making a down payment on the vehicle.
Car Finance Rates
When you are deciding on a car loan it is important to compare the different deals that lenders have to offer. Keep in mind how much the car loan will cost you, look at the interest rate that you will be charged. When comparing lenders make sure to compare loans at the comparison rate. The comparison rate refers to the interest fee plus the interest rate you will be charged and must be disclosed by the lender whether you're getting a small payday loan or a vehicle loan. Ask the lender if the repayment terms are fixed or if they are flexible.
Flexible terms will allow you to make additional repayments without having to pay any penalty fees. Different lenders will require different criteria that the vehicle that you would like to purchase will need to meet you will need to make sure that the car you have found is eligible for financing.
Make sure that you understand the loan terms and how you will be entered into a contract to pay back the loan. Some car loans allow you up to 10 years to pay back the loan.
Decide how much you need to borrow, lenders will decide how much you will be offered depending on your affordability, credit history and current financial situation. Vehicle financing can range between $1,000 and up to $100,000 that can be used for a new or used car and if you have poor credit you may still be able to qualify for a bad credit loan.
Benefits of Car finance
When you are looking for car financing there are many different lenders to choose from in Australia. Lenders offer car loans for those that have good as well as a bad credit score, some lenders will let you apply using your Centrelink payments as your listed source of income. Lenders charge set fees and easy repayment terms that will help you budget sufficiently.
Some disadvantages to look out for are a restriction on what the loan can be used for or loans that offer a variable interest rate that might affect your monthly repayments and cause difficulty budgeting.
Do I qualify for Car finance?
To apply for a loan you will need to provide the following supporting documents:
- 2 forms of photographic identification this can include your driver’s license and passport or photo ID
- proof of your finances such as a 90-day bank statement as well as list your credit, debit and assets
- proof of your income
- details of the car that you would like to purchase including the make, model, year and dealership.
If this is a secured loan you will also have to provide details of the vehicle including the vehicle identification number and the dealership. If you’re applying for a bad credit loan you will generally have to put up some form of collateral – be this the car itself or home equity.
Loan repayment terms
You will need to decide how much you would like to borrow and for how long you need to borrow the money for. A longer loan will mean lower monthly payments over a longer period of time while a short term loan will require higher payments over a shorter period. It is advisable to pay back the loan s quickly as you can to avoid additional charges.
What is a secured Car loan?
There are two main types of loans these include secured or unsecured loans. A secured loan leaves you at risk of losing your collateral while an unsecured loan has a much higher interest rate.
If you're looking for a car loan for your business, there are many lenders that work with companies, both large and small, and can offer vehicle finance or a general business loan to be used to buy a vehicle.
Making repayments on your loan
No matter which loan you decide to take it is very important that you make sure that you will be able to afford to make your monthly car payments. If you miss a payment this can lead to additional fees being charged and in the case of a secured loan you may end up losing your vehicle.
Lenders will offer add-ons when you are applying for a car loan these can include:
- Loan protection insurance – This insurance is sold as an add-on offers to cover the car payments should you be unable to work due to injury, sickness or ill-health. This type of insurance usually isn’t very good value for money and you should shop around before agreeing to add this to your contract.
- Gap cover or shortfall insurance – This will cover your vehicle in the event that it is stolen or written off due to an accident. This type of loan is designed to cover the gap between the amount needed to pay the remainder of the loan and the market value of the vehicle.
- Extended warranty – this insurance will cover unexpected mechanical problems that may arise this type of warranty usually comes with terms and conditions and other restrictions.
You do not need to add any add-ons to your loan agreement if you don’t want to, so don’t be conned into agreeing to options that you don’t need.