Must knows when borrowing $40,000 for a car loan
Finding the right loan to finance your next vehicle can sometimes be a bit overwhelming, especially with so many options available from a variety of lenders. This guide runs you through all the car loan essentials and FAQs so you can catch up on everything you need before you take out a car loan.
What’s the difference between a secured and unsecured car loan?
On your search for your car loan you’ve probably heard the terms “unsecured” versus a “secured” car loan and there is a big difference between the two, so it’s worth knowing what each means. Essentially, it can affect how much interest and even the amount of fees you pay towards your car loan.
Secured car loan
If you are borrowing $40,000 for a new car, a secured car loan is a likely option. A secured car loan is a loan where you, the borrower uses collateral, such as the car, as security. Many lenders will only offer secured loans for new cars or cars less than three years old. While putting your new car up as collateral may seem daunting, secured loans usually have lower interest rates, and a lower rate means you can put more money into paying back the loan faster, which can end up saving you money over the life of your car loan.
Unsecured car loan
Alternatively, borrowers have the option of taking out an unsecured car loan, meaning you don’t need to put up any assets for security. Unsecured loans are generally used when buying a used car, and you might be looking at a lower amount, for example a $10,000 car loan. Usually, unsecured loans have higher interest rates than secured loans but they can have features like free extra repayments so if you have the ability you can pay the loan off faster to save on interest.
Should I choose a fixed or variable rate on a car loan?
Not only do Australians have the choice between a secured or unsecured car loan, depending on the lender you’ll also have an option to choose between a fixed or a variable interest rate. The interest rate on your car loan is a factor that determines how much you’ll repay each month or fortnight, so you must figure out whether you’d prefer to lock one down or open yourself up to potential spikes or falls.
Fixed rate car loans
If you’re borrowing $40,000 for a car, knowing how much your loan repayments will be each month could be a good option. Fixed rate loans mean that your repayments don’t change month on month, making it much easier to budget. These days, many fixed rate loans also allow the option to make additional repayments so if you do find that you’re able to pay out the car loan early, you won’t be hit with high fees.
Variable rate car loans
Right now, interest rates are at record lows but could you afford it if you borrowed $40,000 and the interest rate jumped? This is the risk you take with a variable interest rate. The good news is that with variable rate loans, you’ll get lots of flexibility so you can pay back the loan faster, or switch car loans if you do find the interest rate or fees on the loan are creeping upwards.
What will my monthly repayments be on a $40,000 car loan?
Not all car loans are the same, and you'll likely have very different monthly repayments on a $40,000 loan than you might on a $20,000 car loan. Different factors like your loan term, interest rate and any additional fees will determine what your monthly repayments are. When considering a car loan, make sure you keep an eye on competitive fixed and variable rates so that you can get a rate that suits you while avoiding paying too much on interest every month.
If the numbers are what you are after, jump over to our car loan repayment calculator to get a better idea of what you your monthly repayments could be.
What money saving features should my loan have?
If you’re prepared to borrow $40,00 to fund your new car dreams, the biggest cost saving features of your car loan is to choose a loan with a low interest rate and low fees. The less you pay in these, the faster you’ll be able to pay down the loan.
Other features to look for include:
- free extra repayments: Even if you put an extra $50 towards your loan each month, you’ll pay less interest overall and own your car a lot sooner.
- redraw facility: all those good intentions to pay down your loan early and you get an unexpected bill and need to tap into those funds. This is what a redraw is for.
- choice of repayment frequency: most lenders will give you the choice of weekly, fortnightly or monthly repayments.
Can I apply for a $40,000 car loan online?
Yes! These days most lenders want you to apply for your loan online. Not only is it easier, but potentially you could get a get a response within a few hours and the funds deposited into your account the next day, depending on the lender.
Before applying make sure that you gather everything you’ll need for you application, such as:
- - ID
- - Proof of income
- - Details about your assets and liabilities.
More frequently asked questions
Will my credit history affect my chances of getting approved for a car loan?
Yes, like on a regular personal loan or home loan, lenders will check your credit history and previous borrowing behaviour when assessing your eligibility.
It is a good idea before you make any loan application that you check your credit score to make sure that there isn’t any issues that would affect your loan from getting approved. See our guide on how you can improve your credit score if you are wondering about the things that lenders will be looking for.
While many lenders now offer tiered interest rates and each lender will have their own criteria for loan funding.
For a large car loan like $40,000, will a big bank be better?
Most lenders will have minimum and maximum loan amounts, regardless of whether they are a big bank or not. In some instances, smaller lenders, online banks or peer-to-peer lenders might have better rates for larger loan sizes, that’s why it is so important to shop around.
How long does it take to pay off a $40,000 car loan?
With car loans, loan terms generally range from 1 to 7 years. Keep in mind, that you pay interest throughout the entire life of your loan, so the longer your loan the more you contribute to interest repayments.
All lenders will want to make sure that you’ll be able to pay back the loan amount borrowed so make sure that when you are deciding on a loan term, you choose one that is realistic for you. You don’t want go for a small time period and find yourself too stretched. Sometimes it is better to opt for a longer loan term, but whenever you can make extra repayments so that you shorten the amount of time it takes to pay the loan back in full.
So sit down, take a good look at your financial position and be realistic on how long it would take you to comfortably pay back $40,000. A good place to start is with Mozo’s budget calculator.
How is a car loan different from a regular personal loan?
As the name suggests car loans are specifically designed for the purchase of a motorised vehicle and often they have to be secured against the vehicle. But, that’s not to say that you couldn’t take a personal loan to pay for your car.
A personal loan may be beneficial if you only want to use part of it to finance your car and your own savings for the rest.
What traps should I look out for with car loans?
There are three main things to steer clear of when take you out a car loan:
- high interest rates,
- too many fees, and
- not enough repayment flexibility.
With so many options on the market, don’t settle for the first loan you see. Take the time to compare car loans so that you don’t fall into a trap that could cost you hundreds of dollars!