New Car Loans

Finding the right new car loan

It’s no secret that choosing the perfect car loan is tough and knowing what to look for is even tougher. So to help make sure you’re on the right track, we’ve answered some of the most commonly asked questions about car loans below.

What kind of new car loan can I get?

Once you start comparing car loans, you’ll come across two types, ‘secured’ and ‘unsecured’ car loans. When choosing the right loan for you, you’ll need to factor in the benefits and drawbacks of both types of loans, like:

• Secured car loan - One of the most common car loans you’ll find when buying a new car are secured car loans. If you opt for a secured car loan, you will be using your brand new car as security against the loan in exchange for a lower interest rate.
• Unsecured car loan - But if you don’t want to use your shiny, new car as security, you can apply for an unsecured car loan. With an unsecured car loan, the lender won’t repossess your car if you default on the loan, but unsecured loans usually have higher interest rates.

One of the things you’ll notice once you start shopping around on car loans is that majority of the loans you’ll find are secured. This is because unlike a used car, your shiny, new car is a pretty valuable asset and once you sign up for your loan, your lender has permission to repossess your car if you default on the loan.

Fixed vs variable interest rates: what’s better for my new car loan?

One of the many terms you’ll come across when you start comparing car loans are ‘fixed’ and ‘variable’ interest rates. When it comes to interest rates, there is no ‘better’ rate as you should be choosing the rate that best suits your financial situation.

• Fixed rates: If you choose a fixed interest rate, your rate will not change throughout your loan, so you’ll always know how much interest you are paying to your lender. On the downside, a fixed rate loan will mean that you may have to pay a fee if you pay out your loan early.
• Variable rates: On the other hand, a variable interest rate can change according to the market, either increasing or decreasing. But while the amount of interest you pay may change, there are rarely early repayment fees for a variable rate car loan. This means that you’ll be able to pay off your loan early at no extra cost and use flexible features like the extra repayments facility.  

Should I also look at the comparison rate when comparing new car loans?

Yes, although the interest rate is an important part of your loan, you should also take the comparison rate into account. A comparison rate gives you a more accurate look at what your loan could cost you, as it factors in not only the interest rate, but any fees or other charges you may have to pay during your loan. Just keep in mind that the advertised comparison rate can only give you a rough estimation for your new car loan and that the actual comparison rate for your loan will depend on your loan amount and term.

What’s the best way to compare new car loans?

Similarly to getting a used car loan, one of the downsides about using a car loan to get yourself a brand new car is the amount of money you're going to have to borrow. So be sure to take the time to compare the features that are going to help out in the long run (and save you some cash), like:

Flexible repayment features

Even though you may have to pay a few fees during your loan, there are a couple of features that could come in handy, like:

• Extra repayments - Having the option to make extra repayments can help you cut down on interest throughout your loan. But depending on your lender and loan you choose, there may be a limit to how much extra you can repay and you may also be charged a fee to do so.
• Redraw facility - Another nifty tool is the redraw facility that lets you redraw any extra repayments to pay for unexpected bills or other sudden expenses. Keep in mind though that some lenders may set a minimum redraw amount and charge a fee.

Fees

There are many types of fees your loan may have, including:

•  Upfront or application fees - This is a one-off payment fee you will be charged once you are approved for the loan and can be between $0 - $600.

• Ongoing fees - Think of this as a maintenance fee that keeps your loan alive, it’s usually paid monthly or as an annual fee.

• Late repayment fees - If you don’t make a repayment on time, you may be charged a late repayment fee.

• Break fees - A break fee is charged by lenders if you decide to end a fixed rate loan before the fixed term. You are typically charged a percentage of your original loan amount, so they can become pricey.

• Discharge fees - Also known as an exit fee, discharge fees are charged to cover the cost of closing the loan and can range between hundreds to thousands of dollars.

The length of the loan

Car loans typically last between 3-5 years, with many borrowers opting for a three year loan term to pay the loan off sooner. And while a shorter loan term could help cut your interest down, it does mean that your repayments will be larger. On the other hand, a longer loan term may mean smaller repayments, but you will be forking out more in interest.

What other costs I should be aware of before buying a new car?

Yes, like any type of car, new or old, there are some additional costs you’ll need to factor into your budget, such as: 

Car Insurance - Before you even get behind the wheel of your new car, you’ll need to sort out your car insurance.  First you’ll need to purchase Compulsory Third Party (CTP) insurance before you start comparing comprehensive car insurance policies. Many lenders may not even approve your car loan until you have a car insurance policy ready to go. 

Service - If you’re treating yourself to a fancy, new car, be prepared to pay a little more at your regular car services.

Dealer delivery - This is the fee a dealer will charge to bring your new car from the maker to you.

Registration - rego is an expense that you’ll have to factor into your budget every

year. Plus, when you first buy your new car, there’s also a charge for the registration transfer.

Roadside assistance - there's also a roadside assistance subscription you'll need to sign up for, which is typically paid on a monthly or annual basis. This service will help you out in life's most unpredictable situations, from flat batteries to emergency fuel.

Can I still get a new car loan if my credit is bad? 

You may still be able to take out a new car loan if you do have a bad credit history, but you should keep in mind that you will have to pay a much higher interest rate. Mozo does not compare bad credit car loans because of the high interest rates, so you may be better off looking into a secured car loan or repairing your credit history first.