How to Guarantee you get the Best Car Loan
Ever wish someone would just explain in simple terms how car loans work, and how to get the best one? Well here we go…
WHAT YOU SHOULD KNOW ABOUT CAR LOANS
1. The Interest rate: The interest rate you’ll pay on your car loan can vary hugely. What the lender takes into account in the level of risk they think they’re taking and they judge this by weighing up the following factors:
a. The car loan amount
b. Your deposit amount (the larger the amount of the car you can pay for, the lower your rate will be)
c. The term of the loan (the rate on longer term loans will be lower but don’t make it too long otherwise you’ll still be paying of the car loan when the car is dead)
d. Your credit rating (the better your credit rating the lower your rate will be)
e. Your ability to repay the loan (if the repayments are a stretch you’ll pay more because the lender will consider you a higher risk)
f. The current market trends (current cash interest rates etc)
2. The Fine Print: But the interest rate is not the only thing to consider. You need to check the fine print around what happens if you miss a payment and what happens if you want to pay out early.
a. Some lenders might give you a good interest rate but if you miss a payment they can jack the rate up, sometimes even double the normal rate. You may not plan on missing a payment but things can happen so make sure you know.
b. Say you’re a year into your loan and you get a promotion at work and you’d like to payout the loan early and save some interest. Some car loans let you do this, but many don’t. And some even charge you to pay out the loan early. This is a big trap and most people don’t even realise it until they try to pay out early.
3. The Traps: Another BIG trap people fall into is under-insuring or not insuring their car. Think about this… you find the car you love and buy it for say $20k, you get a loan for $18k. You’re really stretched and decide to only insure third party (third party means that the car you hit is covered but yours is not). You drive it home and on the way home you have a crash, and the crash is your fault.
If the car is unrepairable, then you have no car but you’ll still have an $18k loan to repay.
You would be much better off buying a slightly lower priced car and making sure you have enough to fully insure it.
You may even get a better deal on your car loan if you agree with the lender to always have it fully insured; in fact some may insist on it.
4. Insurance Cover: Don’t let your mates drive your car. If you do, and they have a crash, most insurance companies won’t pay out. Only those people nominated on your insurance policy are covered.
ONE FINAL WORD OF ADVICE Don’t stretch yourself by applying for too big a car loan; if anything goes wrong and you get behind in your repayments, it can be a real struggle to get back on top. I know you may not like to hear it, but it’s better to compromise a little on the car you get rather than to stretch yourself beyond your limit.
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