Top 10 car loan tips and tricks – spend less, drive more

If you’re looking to finance a new set of wheels, Mozo’s tips and tricks could help you shave thousands of dollars off your car loan. 

From knowing what interest rates are out there, to loan features that could help you to pay your car off quicker, the following tips and tricks could be the key to driving down your car loan costs. 

So, buckle up and we’ll get this show on the road.

Whether it’s a car loan or a mortgage, having a good credit score can play a big part in getting your loan approved. So, if you have a low score, it’s time to improve your credit.

Not only can your credit report play a big part in getting your loan approved, but it can affect the interest rate you are offered on your car loan. The better your credit score, the lower your interest rate could be.

Before you apply for a car loan, it’s important to consider your financial situation and determine how much you can realistically afford to borrow and repay. This is where creating a budget that accounts for your income, expenses, and other debts can come in handy. 

In your budget, you’ll also want to consider the additional costs of running a car, such as car insurance premiums, maintenance costs, tolls, and petrol expenses.

The main goal of budgeting is to help ensure you don't blow out your budget and are able to continue making car loan repayments. But it can also help you work out what your price range is for a new vehicle. 

For example, you might be thinking of financing a $90,000 vehicle with a 10% p.a. car loan, resulting in monthly repayments of about $1,500 over 7 years. 

If those monthly payments fit within the bounds of your budget, then that’s fantastic. If that’s a little more than you’d care to spend, then you may consider buying a cheaper car. 

Most car loan providers offer loan terms between 1 to 7 years. On longer terms, your monthly repayments are smaller, but you’re charged more interest on your loan balance. On shorter terms, you will pay less interest overall, but have larger repayments to manage. 

You can see the difference your loan term makes to your monthly repayments and the total interest paid by using a car loan repayment calculator. 

Below is an example of a $30,000 car loan, charged at 8% p.a. interest to highlight the difference your loan term makes:

The effect of your car loan term on repayments and total interest paid

The key is then to find a loan term that works for your budget and decide if stretching your loan term longer is worth the extra interest you pay. According to the example above, stretching your loan term to 7 years would result in much lower monthly repayments, but you’d spend an extra $9,277 on top of your $30,000 loan.

Even if you haven’t decided on a car or personal loan yet, do some research on interest rates and fees, and use a car loan calculator to work out how much you’re likely to spend before you enter the dealership. 

While dealership financing is an option, the convenience and low rates offered by slick-talking salespeople might not be the best option once you’ve run the numbers. 

Outside lenders typically provide better deals. So, make sure you compare your options before you take what looks like a great deal. Plus, having pre-arranged finance for your new car can boost your negotiating power and can show the dealer that you’re a serious buyer.

To sweeten the deal, your car dealer may offer a variety of special deals to get you over the line. These could include anything from free servicing to discounted upgrades. 

While that might be tempting, it’s worth noting that they might not actually save you that much money in reality. Instead, negotiating a lower sale price may actually do more for your wallet than any freebies they can offer you. 

Also, any time-sensitive deals are there to get you to make a rush-decision. So, avoid panic-buying and always sleep on it if you’re not 100% sure that you’re getting a deal that’s beneficial to you.

A car loan that gives you the flexibility of making extra repayments (ideally without paying a fee) can help reduce your debt faster and minimise the amount of interest you pay over the life of the loan. 

While the ability to make extra repayments could come with a slightly higher interest rate or a fee, you should consider for yourself whether the potential savings are worthwhile for you. 

Most car loans are pretty flexible these days, allowing for different loan terms (typically 1 to 7 years), different repayment schedules (weekly, fortnightly or monthly), and different minimum and maximum loan amounts. 

So, when you’re comparing your options, don’t just focus on the interest rates and fees on offer – make sure that it’s flexible enough to meet your preferences. 

Car loans often come with a variety of fees to take care of, including, but not limited to, application, service, early repayment, and late repayment fees. 

Thankfully, lenders are required by law to provide customers with a comparison rate, to help them compare the overall cost of different car loans. Comparison rates combine the interest rate and fees charged to help you compare your options between lenders.

Aside from checking out the comparison rate, make sure you review the product information before applying, to help you avoid unexpected costs. For example, if you apply for a secured car loan, then you may also need to pay for the lender’s cost of registering your car as a security.

To actually apply for a car loan, you’ll need a range of documents and personal information to help your lender determine whether you are eligible for its product.

These documents range from personal information, to proof income, proof of assets and liabilities, as well as information about the car you’re buying. 

Below is a range of documents that you may be called to provide when applying for a car loan. 

Personal information 

• Valid identity document (e.g. drivers licence, Medicare card, passport) 
• Your full name, age, date of birth
• Proof of Australian citizenship or permanent residency. 

Proof of income

• At least two recent payslips 
• Bank statements for the last three months, featuring your incoming and outgoing expenses
• Information about your current rent or mortgage expenses.

Proof of assets and liabilities

• Information about your assets (other vehicles, properties, share or bond portfolios, superannuation accounts)
• Information about other loans you may have (personal loan, mortgage, or credit card debt).

Information about your car (including insurance)

• A dealer invoice or contract of sale
• The Vehicle Identification Number (VIN) of the vehicle you want to purchase
• The year, make and model of the vehicle 
• Information about the car registration
• Information about the car’s fuel-efficiency (if you’re applying for a green car loan)
• Proof of comprehensive car insurance. 

Lastly, it’s never a bad idea to shop around for a deal. Mozo can help you compare car loans for everything from fixed or variable rates, to fees, and features like extra repayments.

Check out some of the featured car loan deals below to get started.