Financing a car
You’re buying a car? Well break out the champers! Ok, maybe not yet, because we have a lot of work to do yet. You’re going to have to have a little think about how you’re going to finance your new set of wheels and for how long. It’s all about budget and wishlist. If you can make a compromise somewhere in between then you’ll be cracking out the bubbly in no time. Let’s have a closer look at your options:
Bank loan: Personal or Car?
This is where you have a discussion with yourself and your lender with what exactly you need the money for. If you’re after flexibility in the way you spend the money you borrow, then you would go for a personal loan. If you’re more car-focused then you should probably go for a car loan. But do the sums first. Are the rates relatively the same, or is one much higher than the other?
Also, most lenders offer both fixed and variable rates on a car loans, but if you are going to be buying a new car there are sharper rate deals with some banks than if you were buying a used car. Some lenders even have green loans if you are buying a hybrid or electric car. Compare loans on Mozo simply here with our car loan comparison tool.
No point hiding here that going for a dealer finance may score you a super low rate when it comes to securing finance for your next car. But it doesn't mean you’ll get the best deal for your car. Sometimes walking in with money in the kitty sets you up for better bargaining power allowing you to negotiate things like price of the car to extras like window tinting and even wheel insurance.
You may want to narrow down your search to top two to three car brands and enquire before walking in how much their dealer finance rate is and compare that with 2-3 lenders. That way you can have a thorough understanding of what to expect when it comes to securing the best rate for you. Always try to push the rate lower where you can, you never know how much flexibility the dealer really has until they see you tempted to buy a car at the right price. Have a look at Mozo’s Car loans versus car finance guide for more info.
Specialty car finance providers
Sure there’s the Big 4 we’re all familiar with. In fact your main banking may already be with one of them. But did you know thater are other dealers out there that may in fact get you a better rate than the bank you already bank with?
Unfortunately customer loyalty doesn't always play a role in saving money with your bank when it comes to buying big ticket items. Think about it. The Big 4 are big usually because they’re historical institutions as they’ve been around for a lot longer than all the smaller lenders. Try at least a century. So with branding, tradition, and reliability, millions of people choose to bank with them for the sake of security. And because their family banked with them before they did. But don’t limit yourself to them alone! They’re super busy and may not be able to give you the attention you need or properly tailor a deal that’s right for you.
A smaller lender may sometimes be affiliated with the Big 4 but not only have more attentive customer service but also stronger negotiation powers. Try your luck and see for yourself.
Car financing tips and traps
Buying your next car is all well and good. In fact it’s exciting! New car smell, new steering wheel, the tyres are stronger, better, bigger and make you feel on top of the world. Literally. But have you considered all the nitpicking traps that come with owning your next car? Don’t worry, we’re not all negs. We’ll even give you some tips to help you along the way. Let’s take a ride through our checklist on the dos and don’ts of financing a car to get your search started:
1. Always compare bank loan to dealer finance - sometimes having big bucks sitting in the bank gives you better negotiating power when you’re finally ready to buy the car of your dreams.
2. Have you tried negotiating the price? If this makes you shy or feel awkward, just try this line: ‘What’s your best price?’ and watch the thousands start to shave off the selling price. Push harder. Before you know it, you’ll become a pro and wonder why you didn’t use negotiating skills more often in your life.
3. Fixed or variable rate? We sometime forget to arm ourselves with this kind of information before setting foot in a bank or dealership. Just remember, that a fixed rate will remain the same for most or all of the term of your loan which meanthat your repayments will be predictable and you’ll be able to budget your day to day expense a lot easier than with a variable rate.
1. Dealer finance can often be seen as an easy option. A one-stop-shop of sorts where you buy your car, sort your your finance and insurance all in one breath and visit. But is it the best deal you can get? do what you can to bring the price of your car down as much as possible like reconsidering the extras or negotiating on price. Do you really need the spoiler and metallic paint?
2. So you got the ‘extended warranty’ spiel? Yep, we’ve all been there. Just kinda nod your way through until they finish or about to take the next break and then announce politely that you’re more than happy to take the regular warranty at this stage. If something happens to your car after the regular warranty finishes, which is on average 3 years, then the money you’ve saved on the extended warranty could probably pay for it.
3. What’s the trouble, bubble? It’s the wretched bubble payment, that’s what. Some people swear by it because their repayments are much less per month. But then there’s a whopping ‘bubble’ amount to pay at the end of their loan! Also known as the residual payment, it’s a fairly large amount that can really be a shock to the system if you don’t have that sort of money lying around for you to pay.
A bubble payment also usually designed for people who intend on trading their car to buy a new one with the same dealership and transfer some of the balloon repayment to the value of the new car. You follow? Not easy. If you want to keep the car and need help working out how to pay the residual amount, read Mozo’s clever ways about finding a bubble-solution so you don’t burst yours: Beware credit card debt consolidation deals.