Car loan tips

If you’re thinking of buying a new set of wheels, you’re probably going to need a car loan. And the time to consider car financing is now – before you’ve found your dream vehicle.

When you set out to purchase a car, one of your first decisions is whether to go for a personal loan or obtain car finance from the dealer. Dealer financing can be convenient but it can cost you compared to regular car loans offered by banks. Sometimes, dealer financing can include higher rates, extra fees and less flexibility, and often you won’t own the car outright by the end of the finance term.

When it comes to the banks, comparing rates is simple enough; most bank websites will provide a good loan calculator to do the job. But how do you decide on fees and flexibility?

Start by thinking about what you want. How quickly do you want to pay it off? (That will determine the term of your car loan – consider matching the repayments to your salary cycle.) Might you make occasional, extra payments? If you make extra payments, is it possible you’ll need to redraw some of that money further down the road, maybe for improvements to the vehicle? Be aware of any fees you will be charged to do so.

Finally, does the loan include exit fees? These fees are charged when you pay off the loan early. Keep them in mind; you can find personal loans on the market that don’t have exit fees.

As for the interest rate, would you prefer the stability of a fixed-interest loan or are you prepared to take some risk for the possible advantage of lower rates? You can learn more about the difference between fixed and variable interest.

Once you’ve answered all these questions you’ll know what you need in your car loan. And here’s the kicker: don’t pay fees for features you don’t need. If you want a simple, fixed-interest loan with steady repayments, there’s no need to make your car finance more complicated and expensive than it needs to be. Remember, a low-interest loan can still cost you more if it contains lots of hidden fees.

In addition to considering your needs, and matching those to the different options on the market, you can save by cleverly bundling other costs into the loan. For example, you can include insurance, rego, repairs and improvements (stereo, sunroof and so on) in the final amount of your car loan. Sometimes, the more you borrow the lower your rate, so bundling can work in your favour.

However you slice it, whether you’re buying your first car or your fifth, it pays to think in advance about car financing.

Let us know what’s worked for you or ask us your questions below.