So you’re getting a car loan for a new car. This is exciting! A car that’s never been driven before, a car that's pristine all over and is completely and utterly yours. Your very own dream-machine, because right now, with the choice of lenders out there you can have any car you want! Within reason of course.
A car loan typically lasts anywhere from 3-5 years. It seems like forever doesn’t it? But with a little patience and perseverance, your brand spanking new car will be yours forever, until you decide to sell or trade it in of course. Hopefully not for a while. After taking so long to repay your debt, you’d want to enjoy it for a little, why wouldn’t you?! Wondering what’s in a new car loan? Let's have a look.
Interest rate - it probably wouldn’t surprise you if you found interest rates relatively low when shopping direct from a dealer. But it usually means that there’s little room to move when it comes to negotiating the price of your new car.
Will your repayments work out better if you secure a car or personal loan with a lender independent of the dealership? Mostly yes. But this is something you need to research. Since a car loan lasts anywhere between 3 to 5 years, the difference between percentages and car prices could mean you either save or spend thousands of dollars. So do your homework!
Something else you need to consider: either a fixed or variable rate. If you’re asking us, we’d say fixed rate any day because it means you get to budget your repayments every month at the same time for the 3 to 5 consecutive years you have the loan for. Don’t just take our word, see for yourself when you use Mozo’s car loan comparison tool.
Security - did you know that if you actually put the new car you’re buying as security on your car loan, the rate you pay will be less than if it was an unsecured loan? So fab! We think this is the best way to lock in a secure loan, because what happens if you lose your job and default on repayments? Having your house as security on the car loan is probably not a good idea. Do you really want to be forced to sell your home for the sake of saving your car? We think not.
Term - this usually refers to the length of time you decide to take your loan out for. Some lenders offer a minimum of 1 year, others offer a minimum of 3. However, many car loans are taken out over a 5 year period. This is so that you can stretch out your monthly budget dollars further, despite the fact that in the long run, you’ll be paying more in interest. It’s just a little room to breathe while tackling your loan at a good pace.
Will you have a balloon payment to to make at then end of the term? Are you able to make additional repayments throughout the term? Will you be penalised if you want to pay off your car loan early? This is part of the open, transparent conversation you need to have with your lender, but probably instigated by you, so take a list of questions with you before you sit down with them.
Application fees - not every dealership charges for application fees. But don’t be fooled when they say no application fees! They may in fact inflate the price somewhere along the line to absorb the application cost, so you kinda do pay for it in the end. But for dealers who are straight up about the expected charge, will tell you that it’s anything from $200 to $500 and sometimes more. This amount covers the paper shuffling that the dealer does on your behalf, saving you time and money in the long run which is nice.
Repayments - you guessed it! It’s one thing to be approved for a car loan, but the reality of the loan is repaying it. Can you afford the regular increments? Mozo prefers a fixed rate to allow you for better monthly budgeting, but it really depends on you, your personal situation and what you prefer. So say you have a fixed rate that equates to $1000 a month in car repayments, it means that you need to make sure you have a spare $250 a week to put away for when your payment is due. Try Mozo’s car loan repayments calculator.
Don’t think you can miss a payment here and there either. There are no excuses and no one will listen to your sob story. Miss a payment and risk a strike against your credit history. Bottom line? Make all your repayments on time. Every single one of them.
Additional repayments - are you aware that some lenders allow you to make extra repayments on your car loan? And at no extra cost? This means that you can shorten the length of time you need to repay the loan, which may even save you money in the long run Great, huh? But triple check this. Not every lender allows you to pay extra or even payoff your loan earlier without a cost.
On-road costs - with any luck, your dealer will absorb the costs for you, or so it will seem. In most cases, the on-road costs are incorporated in the sale and price of the car so that you don’t have to worry about it when you receive your car. This means everything from registration of your vehicle, new number plate, CTP greenslip and more will be all sorted.
Insurance - if you haven’t already thought about it, you’ll need more than just your car loan repayments. Apart from your compulsory CTP insurance, you’ll need to consider regular car insurance payments for your actual vehicle because you never know when or if you’ll ever be involved in a prang. Don’t take the risk! Remember to double check with your insurer with what you’re insured for. Is basic going to be enough?
Home, business, car? It really doesn't matter what kind loan you apply for - the application process is almost identical for each. This is what you’ll need:
Proof of income - you’ll need to pull out the last financial year’s tax return. And depending on the lender, you may need to provide the last two years. If you’re earning more this year though, a few month’s payslips or invoices that you’ve sent out (if you’re a contractor) may help too.
Australian citizenship - or at the very least, permanent residence. It just means that the lender has more confidence and trust that you’re staying put and not going to run away while incurring a whole lotta debt. And you wouldn't do that. After all, you’ve worked so hard at proving worthy of becoming an Australian resident right? In saying that, you’ll need to provide proof of residency and preferably have an Australian address.
Awesome credit rating - what defines awesome? How about paying your bills on time! So if you’ve mostly paid all your utilities, credit card and any other loan repayments on time, then you should be ok.
You may think you’ve provided enough identification already, but there’s more needed. Every lender has different requirements, so you’ll need to be on standby all or a combination of anything from:
Whether you take out a personal loan at your local bank or a car loan with your dealership, you’re going to have to think about the following:
Tip: To avoid unnecessary fees on late payments, set a reminder on your smart device or diary. You’re even better off setting up auto repayments with your bank so that you don’t ever forget or distracted by everyday life. Set and forget, we say!