There are so many ways to pay for your next car. Crazy for reward points? Then you may want to use a credit card that has a pretty generous limit. Good at saving? Then it wouldn’t surprise us if you prefer to pay for it in cash. Will it save you some dollars in the long run? Sure. But do you really want to put all your eggs in one basket?
Spreading your money out a bit, may allow you to do more with it. You could invest some of your money or save it in a term deposit while opting for a car loan
instead. By opting for a car loan, you pay off your car at a steady pace within an agreed length of time, so that you can maximise on the savings you already have.
But have you worked out how much you can afford to repay? Just because you can afford the repayments of a $50,000 car, should you purchase a $50,000 car? Will a new car purchased at $23,000 serve the same purpose? Carry the same passengers? Have the same boot space or more? From easy loan comparisons and affordability, use Mozo’s loan repayments comparison calculator
to see where you stand.
Car loan types
For those unfamiliar with loan types
, we’ll explore them a little here. Remember, if you have any deeper concerns or questions, have a chat with your lender or car dealership to help you fill in the missing blanks. Let’s take a look:
Secured car loan
This one’s as straightforward as you get. A loan that relies on the value of an asset that matches or exceeds the value of the loan. The car that you purchase is usually used as the security on your loan instead of other cars or property in your name. After all, you don’t want to risk losing your investment property or home because you missed a car payment do you?
Just to reiterate, an asset is used as ‘security’ on your car loan in case you default in repayments. You may be able to get a few weeks grace as long as you catch up, but be expected to receive a penalty of some sort. This could be a late payment, interest charged on the missed amount etc. But delay your repayments and miss too many weeks or months and you risk losing the car you’ve already started paying off.
Unsecured car loan
This kind of loan is a little more difficult to secure and usually takes a little convincing that you are a suitable candidate for the loan. It may be easier however if you have an established relationship with a lender, where your other accounts are transparent to them.
In other words, if you have a chequing account, savings account, a credit card and a mortgage with them, then your lender will feel more at ease about lending you the money for a car, seeing as you’re not really going anywhere. That is of course, you’ve stayed on top of your repayments for all your debts. No point in applying for a new one if your repayment reputation is little lack lustre.
With an unsecured loan
, expect to pay higher interest rates, regardless on your rapport with your lender. There are structures in place that are out of their control so no point in trying to negotiate that one. And it’s completely understandable - after all, an unsecured risk, is still seen as a risk, no matter how long you’ve been a customer for.
Car loan tip 101:
missing payments is no funny joke and can affect your credit rating and future borrowing power. There are no excuses and your lender hardly cares about your personal life or dramas. You’re best to set up an auto payment to repay your debt without you needing to remember. Just make sure you have more than enough money in your account that covers your repayments and other everyday expenses. Get more car loan tips here
Loan repayment scenarios
Still think about that fancy car? Ever wondered how much your repayments would be? What about cheaper alternatives? We’ve been thinking about the repayments too and have tallied them up for you in a table to compare yourself:
Loan period 3 years
|Car price ||$15,000 at 6.5% ||$25,000 at 5.64% ||$50,000 at 6.70 |
|Monthly repayments ||$460 ||$756 ||$1536 |
|Car price ||$15,000 at 8.38% ||$25,000 at 12.39% ||$50,000 at 8.39% |
| Monthly repayments ||$473 ||$835 ||$1576 |
Loan period 5 years
|Car price ||$15,000 at 7.79% ||$25,000 at 7.20% ||$50,000 at 5.64% |
|Monthly repayments ||$303 ||$497 ||$958 |
|Car price ||$15,000 at 12.39% ||$25,000 at 8.39% ||$50,000 at 11.99% |
|Monthly repayments ||$340 ||$512 ||$1,112 |
As you can see, having a fixed rate on your loan can help your budgeting plan as your repayments will always be the same. The variable rate, may fluctuate during the term of your loan so it go from high, to low and anywhere in between. Although the repayments can go lower than a fixed rate, it’s still the risk you take.
The rates you see above is a live snapshot taken from the Mozo site at one moment in time using the car loan comparison tool. These tables give you a good indication at how rates offerings can really differ between lenders. Try it for yourself here
Tips for buying a car
Just a few simple steps and things to consider before signing the dotted line on a new car loan and purchase that could save you thousands in the long run. Let’s have a look:
1. Research and compare
There’s really no sense in making a large purchase like a car, without doing at least a little bit of research. Making rate, cost and product feature comparisons helps you get your head around what you actually need vs what you want, as well as what you can afford vs what is a suitable amount to pay. Use Mozo’s car rate comparison calculator
to start your research off.
2. Car viewing
Going online and falling in love with an image of a car is really not enough. There’d be nothing worse to have paid $32,000 for a car you assumed put be the right look and feel because of its online campaign or product website, when in person and after you paid for it it just didn’t ‘feel’ right. Test drive a variety before making a decision.
This when it’s time to be as realistic as possible. You can afford to repay a car loan for $50K now, but will you still have the same job in 3 years? With the economic climate historically wavering and unsteady, can you really really on your current income to be the same in years to come? It’s a good idea to pick a car and price that will do the same job as a vehicle that’s less costly. Afterall, they depreciate in value the minute you make the purchase!
4. Used car
Buying a second hand car? Then a little caution is needed before handing over your hard earned cash or signing up for a car loan. If buying from a car yard, is it from a reputable place? If privately purchased, do you know the car history? Do a search on Revs.com.au to check the VIN. It’s also a good idea to pay a professional mechanic to look over it to ensure it’s roadworthy also. A couple hundred dollars could save you thousands of dollars of heartache if you buy a lemon.
Tips for choosing a loan
Buying a car is not just about haggling the price. You should also look for the best car loan rate deal to secure a loan that best suits your budget.
- Start by using Mozo’s car rate calculator to work out the repayments you can afford to part with.
- Make a decision between fixed and variable interest rates. Remember, a fixed rate makes it easier to budget every week, whereas variable is an unpredictable amount.
- Ask your lender about hidden costs: are the account keeping fees, charges to make the application, charges for a successful or unsuccessful application?
- Check to see if on-road costs included or an additional payment?