How to Choose the Right Car Loan

Do you want to get your dream car but don’t have enough cash? There are so many ways you can use to get financing. For instance, you can either choose a lease, use dealer finance, or add your savings. However, the most common way is getting a car loan from your financial institution.

What is a Car Loan?

A car loan or auto loan is taken specifically for buying a car or other road vehicle like a motorcycle. It falls into the category of personal loans, which also comprises of home remodeling loan, weddings, or education loans.

Car loans work perfectly when you have savings that are not enough to purchase your dream car. You take the loan, combine it with your savings, and repay in monthly installments stipulated by the bank.

Even though there are hundreds of car loan lenders in Australia, not all fit your needs. Your ideal lender should put your monthly expenditure into account to avoid a financial strain when repaying. Here are some tips to help you out.

1.   Consider Your Budget

Everybody wants to have a Bentley Bentyaga or one of those expensive and luxurious cars. However, if your paycheck does not rhyme with the cost, there is no need of taking a car loan. If you do, you will be taking yourself into a financial abyss for nothing.

Besides, the price of the car is not enough. The most important thing is the repayment cost. You can use the NRMA car loan calculator to know how much it will cost. Don’t forget to add small credentials like servicing cost and fuel.

2.   Consider the Loan Term

Different lenders have different loan terms but are both expensive in the long run. For instance, some companies have a concise repayment term but with higher monthly installments.

On the other hand, other companies have longer repayment terms but accrue more interests at the end of the repayment period. So before you sign the loan terms, you must arrive at figures that you are both comfortable with.

Nevertheless, it’s advisable to choose the shortest loan if you can pay. You finish the debt early and avoid the psychological torture of watching your interest accrue while bills keep coming.

In addition, ensure that your lender does not give you a penalty for repaying your loan early. Those that do this charge between $20 – $800.

3.   Decide between secured or Unsecured Loans

Both secured and unsecured loans have their pros and cons. Unsecured loans have high-interest rates which means that you pay more by the time you clear the loan. Secured loans do not have a high-interest rate. The problem is that you may end up losing your hard-earned asset if you default.

The bottom line is this – never miss repayment with either of the loan types. A missing payment puts a dark history on your credit profile that might deny you impressive deals in the future.

4.   Check out for these Extra Features

You will probably meet hundreds of lenders in Australia that are ready to give you the cash. The best way to separate the wheat from the chaff is to check out for these extra features that are the ultimate deal breakers.

• Is it possible to pay out the loan early without getting penalized?
• Are the interests too high?
• Do they have hidden fees?
• What is the approval duration?

If you can get viable answers to these questions, then you are free to close a deal. But just know that lenders have different takes when it comes to such matters.

5.   Don’t Settle on One Institution (Even if it’s Your Regular Bank)

Although 59% of Australians prefer taking loans with their banking institutions, it’s advisable to compare car loans with other providers. You never know. You might land a lender that best fits your situation where you never expected.

There are many sites you can use to compare loans which makes it easier to land a compatible lender. But note that different institutions offer different range of loans.

Conclusion

Although it may appear like a simple task, the consequences you pay for choosing the wrong lender may adversely affect your credit history. But when you are armed with the right information, you will land a  reliable lender.