- Posted 20 Aug
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If you are planning to buy a new car or purchase a used vehicle, understanding car finance can save you a lot of money.
Here are some tips you need to know to get the best car loan that suits your situation.
Be aware of your credit history
If you have great credit you’ll probably have no problem getting offers from lenders. Less than perfect credit doesn’t necessarily mean that you’ll get turned down, but you may not get the best rates and you may have difficulty accessing some lenders.
Before beginning the application process, it helps to be informed. You can request credit histories from Veda, D&B, and Experian once per year or if you’ve been turned down for a credit application within the past 90 days.
This is a good idea to make sure that you have no errors on your report. If you’ve had past credit problems, paying off old debts and establishing a pattern of regular savings can boost your chances of obtaining a car loan.
You may be tempted to apply for a loan from multiple sources and accept the best offer. This approach can hurt your credit rating however, especially if any of the loan agencies turn you down.
Instead, the better approach is to shop around for the loan with the best rate. Read the small print on loan websites and look for any hidden fees. The time you spend researching rates can save you hundreds or even thousands of dollars over the life of your loan, so it’s worth the extra effort.
Remember that you may not get the rate you see advertised. The rock bottom rates advertised by lenders are typically only available to customers with the best credit rating. This doesn’t mean that you can’t get a loan, but if you have less than perfect credit you may be offered a higher rate than what was initially advertised.
Secured vs. unsecured loans
Car loan rates are typically lower than those of personal loans because they are tied to an asset, namely the car you are purchasing. This means that if you default on your loan the lender can repossess your vehicle to recoup the loan value.
If you are purchasing a cheaper used car and need to borrow less than $5,000, it may make sense to obtain a personal loan or even use a credit card. If you can get a card with a low interest rate or an introductory six or twelve-month zero interest period, your car buying experience will be simple. But only consider this option if you are sure you can pay off the amount before the rates go up.
If you receive a bonus or pay rise and want to save money by paying off your loan early, you may run into trouble. Some loans have exit penalties for early repayment, and some lenders don’t allow additional payments. Read the loan terms closely before signing and make sure you understand all the requirements.
If you are searching for your next car loan, Australian Credit and Finance can help. Contact our experts to get your best possible loan rate.