Need Car Finance tips?
When buying a car, it can take an enormous amount of research and time. The last thing you want to do is pay any more than you have to for your new vehicle. Car finance is an important part of the purchase process unless you have enough money to purchase the vehicle outright.
The problem is that many people just want to get through the process as quickly as possible and into their new set of wheels, instead of spending the time to properly consider and weigh up their options. Most of the time, energy, and emotion is focused on questions like, “Which car should I buy?”
What Are Your Options When Financing Your Car Purchase?
Below you will find different ways to obtain car finance:
Unsecured Personal Loan
With a personal loan, you can borrow a certain amount of money as a lump sum and then make regular payments to repay the loan. Typically, you are allowed to spread your repayments from one (1) to seven (7) years. Your regular repayments will become more affordable as the term gets longer. However, this will result in higher interest costs over the life of the loan.
Personal loans usually do not allow redrawing of funds that you have repaid in advance, even though you have paid more than the minimum amount required. Such loans have a minimum value, from $1,000 to $10,000. You can find loans that have unlimited maximum amounts, although others are capped at $25,000.
If you go for a personal loan, it can either be secured or unsecured. Secured loans have lower interest rates and can even increase the amount you can borrow.
A car or auto loan is similar to a personal loan. Lenders and banks often call it a secured personal loan because the car that you plan to purchase will be used as security for the loan. If you do not pay your loan, the newly bought car can be seized.
A standard car loan can be from a bank, credit union, or any organisation that lends money. If you choose this option, you will find that it is the easiest and simplest of all. However, the borrower is required to be financially sound. Establishment fees, origination fees, monthly account keeping fees, dealer fees and the interest rate all need to be taken into account when deciding which is the most suitable car loan for you.
A car loan can also be unsecured, but you need to watch out for the higher interest rates. If you allow the car to be used as a security for the loan, it will need to be covered by comprehensive insurance, and a certificate of currency will need to be provided to the lender to verify this.
If you are seriously thinking about a standard car loan, you can enjoy the following benefits:
- On-road costs can be included in the financing package.
- The monthly payments are often flexible with customisable time and repayments.
- The interest rate, which can either be fixed or variable, will be much lower because the loan is secured against the car.
In Australia, about 400 personal car loan products are available with about 25% of them from credit unions. Rates vary greatly, depending on the type of car you are buying, whether it is new, second hand, from a dealer or a private seller, your credit rating, whether or not you own property, how much you are borrowing, and what the vehicle is going to be used for ie: commercial or consumer.
People who do not have a mortgage, typically go for a car loan. It can be a cheaper option provided the amount borrowed is paid over 5 years, however it does require quite a bit more documentation compared to a car loan. A loan with a variable rate may be better than a fixed rate, especially if rates continue to decrease. You also have the flexibility to make additional repayments with a variable rate loan, with significantly fewer break costs & early termination fees.
On the outside, your mortgage is the cheapest option available. Many home loans these days come with a redraw facility or an offset account. You can make extra repayments while you can still access the money whenever you need it.
Here is an example:
You redraw $30,000 from your mortgage. Then pay cash for the car from it.
As you can see, it is quite simple. However, there is a catch. Car loans would often have up to seven-year terms. Your mortgage, in this example, has 20 years left to run. As with any loan, the longer the time you owe money, the more it will cost you in interest.
This option is quite tricky. People would often complain that onsite managers would talk them into signing up for financing. Dealers will tell you that you can drive the car away much sooner if you do the finance through them, however, this is not always the case.
If you select this method, you may need to time your visit to the dealership. It is best to go when they are running out of time to hit their sales targets. For instance, you can visit at the end of the month, so you can get the most out of any bonuses they are offering. You need to be a tough negotiator to truly benefit from this approach.
What Does a Car Finance Broker Do?
There are still numerous other financing options available. You should consider your options carefully. Some choices that suit other people, may not be good for you. It helps to ensure that you are comparing the same type of loan with another ie: apples for apples, and ascertain the total cost of the entire deal that you plan to sign up for.
This can be quite confusing and overwhelming. You need to think about how much interest you will have to pay, along with all the other charges we discussed earlier. Some loans have a break cost if you repay them early. Even by considering the pros and cons, it is not an easy task. For smart borrowers, they choose to use a finance broker.
What is a finance broker? A broker is a mediator or a go-between. The professional arranges loans, dealing with lenders so you can have the best loan for your situation.
A few years back, brokers were free of charge. However, ASIC has banned flex commissions, mandating that brokers should charge a transparent fee to their clients. Flex commissions were abolished on the 1st of November in 2018.
These commissions were paid to car dealers and brokers, and the payments came from lenders. They were a way for lenders to encourage brokers to arrange loans with customers so that they would go for the highest possible rate.
You may be wondering why you should still hire a broker. After all, brokers mean additional costs. A broker though has an important role to play in your car loan. So many hassles come with borrowing money for the car purchase, making it difficult for you to land the best choice. A car loan broker will help you in several ways.
As a professional who can efficiently prepare and submit your loan application, you can be sure that you are in the right hands.
With a broker assisting you throughout the process, it will be much easier to align your goals with suitable loans and financiers. A quick interview and discussions will lead the broker in selecting options based on your current financial standing. Your hired broker will assess your capability, along with your credit history. This way, you can get everything cleaned and ironed out before you even send out your application.
While brokers now charge a fee for their service, their benefits can easily outweigh the costs. Here are the top reasons why you should let a broker work with you as you look for the best loan to finally purchase the car of your dreams:
Brokers save you time.
Looking for the right car loan can take a lot of hard work. If you are a busy individual, running your own small business or taking care of your family, you do not want to add finding loans to your existing burdens. Instead, a car finance broker can take care of the process for you.
It requires effort, time, and perhaps even money to compare various types of lenders and loans. Even if you try to research on the available options on the market, you can miss certain important details. Also, just reading off the Internet does not guarantee that you will land the best deal. The best thing that you can do is to hire a broker who will collect all the needed information for you.
Brokers typically start with your financial background and current situation. They will also perform a credit check to ensure that you meet the requirements of the lenders or loan that you wish to get an approval of.
Using the information you have provided, brokers will utilise their experience and expertise to figure out which loans are right for you. They will approach lenders with caution, armed with the knowledge that they have acquired from the industry. It is a benefit that many people fail to recognise. Working with a professional will give you a better chance at getting the best deal on your preferred loan and lender.
A car loan broker is not a car lender.
This benefit is one that you will be thankful for. A car loan broker works for you, not against you. Many lenders will try not to provide you with the loan and the rate that you are going for. They may approve your application, but you could receive unfavourable restrictions, fees, and charges – unless you have a perfect credit rating.
Car loan brokers will visit banks and lenders so you will get the loan that will meet your needs. The car lender, on the other hand, will only offer you products and suggest them to the broker. With experience and knowledge in these types of loans, the broker can easily handle the options. It saves you time and effort since you no longer have to go to different lenders just to get a quote.
A broker is an expert when it comes to loans.
When you do not know about a particular subject, one of the first things that you will normally do is to look it up online. It can take hours to understand a part of a loan, including its features and rates. You can also end up getting the wrong information.
With a broker behind you, you will never have to worry about such an occurrence. You save countless hours that you would have spent looking up different banks and lenders. Brokers are experts, which you can already tell from their years of experience in the industry. It is why you can easily get the upper hand when you work with them. The benefit is that you can be pre-approved for a loan with a competitive rate.
The broker will provide you with a personalised service.
You already know that people have different needs. Your loan requirements and your situation can vary greatly from another person. You need a service that is designed just for you. With a broker, you work one on one. If there are modifications and issues, they will be addressed right away. You can quickly access the broker by phone, email, or any chosen means of communication.
Additionally, you have shared certain details about your financial condition and goals. The broker you work with will ensure that you have loan options tailored specifically to your situation. Therefore, you can be certain that the loan that you apply for is something that you can afford. At the same time, it will not disrupt how you live your life. In other words, it is the perfect fit for your lifestyle and car loan requirements.
You can save money with a broker.
Believe it or not, you can save money when you work with a broker. Sure, you will have to pay for the service fees, and the like but you will get the best deal. In the end, you save more money over the long-term. Compared to the very small amount that you pay the broker you have hired, you can save on the repayments, interest, penalties, and other costs.
What to Look for in a Broker
Before you hire a broker, you should first make sure that the person is licenced. It is a requirement because the broker will arrange loans for you covered by the credit law. You can always check to see if the mortgage or finance broker is registered whether online or by phone at 1300 300 630.
Brokers have access to a wide range of lenders. They offer convenience, allowing you to save time instead of talking to different lenders on your own. The question now is this: how do you choose the right car loan broker for you?
It is a tough decision, just like when you are searching for a loan. After making sure that the broker is licensed through the Professional Registers of ASIC Connect, you should understand the fees and the process. The broker will mostly send applications off to the lender for approval. When it comes to the fees, the broker should be transparent right from the start. The fees should be clear for the services the broker offers. Ask about the loans available, whether or not they will work for you.
Get all the vital information before you make a decision. When you talk to the broker, you may be able to tell if the person has the required know-how to help you find a suitable car loan for you. At Vie Financial, you know you are working with a certified professional. Talk to us today so we can give you the assistance you need for your car loan application.