If it’s your first time shopping around for a car loan, it can be a bit tricky knowing where to start. That’s why we’ve compiled a list of commonly asked questions to get you on the right path when it comes to finding the right car loan for you.
Types of loans available
When it comes to car loans, there are two types: new and used car loans. As both their names suggests, a new car loan can be taken out to purchase a brand new car, while a used car loan are loans used for purchasing second hand cars.
When you are buying a new car, often you will have the option to take out a secured car loan. This means that you secure the car against the loan and in exchange you get a lower interest rate. Lenders will usually have some kind of age limit to cars that can be used for security (usually up to 4 years old), this is why if you are buying a used car, you’ll have to choose an unsecured loan.
Fixed vs variable interest rate - what’s better for a $20,000 car loan?
Once you start shopping around for the right $20,000 car loan, you’ll find that there a two types of interest rates available: fixed and variable interest rates.
With a fixed interest rate, you’ll be able to lock in your rate over the loan term, meaning your repayments won’t ever change. This could be a good option for you if you like the comfort in always knowing your repayment amount.
On the other hand, a variable rate fluctuates with the market, so it is subject to change which means it can go up or down during your loan term.
What should I be comparing in a $20,000 car loan?
For many Aussies, finding the perfect car is a lot more exciting than finding the right car loan. But that doesn’t mean it’s not important to shop around on car loans, as you’ll soon find that just like cars, they’re not all the same. Here are a few things to look out for when you start comparing car loans:
The interest rate
Like any other loan, the interest rate is possibly the first thing you look out for. The loan term is another important factor to consider, as it will impact the amount of interest you pay on the loan.
For example, say you took out a $20,000 car loan to repay over five years on an interest rate if 7.99%, using our car loan repayment calculator, you’d pay $4,326 in interest. However, if you took out the same loan but for a term of three years, you’d pay $2,559, a difference of $1,767!
The comparison rate
The comparison rate is the rate that sits next to the regular interest rate and is the ‘true’ cost of your loan, as it takes fees and other costs you may encounter over the life of your loan. But while it can give you quick insight into how much the loan could cost, it is still an advertised rate and may not accurately reflect the real cost.
Speaking of fees, you’re likely to pay a few fees on your $20,000 car loan, like an upfront or ongoing fee.
Also known as an application fee, an upfront is usually charged at the start of your loan. Just keep in mind, these can get pricey so it’s worth weighing up whether this price is justified against the other loan features. Ongoing or service fees can be charged on either a monthly of annual basis. Think of these as a maintenance cost associated with keeping your loan going.
Other fees you could come across include discharge fees or late payment fees.
These days, loans come with more than just a interest rate, such as repayment features that can help you reduce your interest payments and pay your loan off faster. For instance, some $20,000 car loans may come with an extra repayments feature, which allows you to make additional repayments on top of your regular monthly repayments. One thing to remember is that there could be a limit to the amount of extra repayments you’re able to make.
And if you ever need access to those additional repayments for an unexpected expense, some loans come with a redraw facility. This allows you to withdraw any extra repayments you’ve made, just keep in mind there may be a fee each time you do this.
Many lenders also offer flexible repayment options, so you can make your repayments on a time that suits you best, whether that’s monthly, fortnightly or weekly.