The idea of driving around in a new car is exciting. From extra reliability and improved technology, through to the all important new-car smell, you have plenty to look forward to.
It’s not all fun however. Are you looking forward to spending hours visiting and calling dealers to ensure you get a fair deal on your new car? If you are like most people, the answer is probably somewhere between “no” and “hell no”. What about the time it takes finding a loan?
It can be tempting to skip all the running around that comes with not only looking for a suitable car but also finding a suitable loan to get it. However, taking time now to understand the difference between loan types and terms can equate to big savings in the price you pay over the course of a loan.
Before committing to the first deal you see for your desired new ride it’s important to understand your loan options as well as a few tips to save you money on both the purchase price and the loan.
Determine Your Budget
Prior to beginning any online searches or trips to the dealerships it is important to analyse your weekly income and expenses to determine how much you can afford to spend on a car. For some people, buying a car can be an emotional decision, and falling in love with a new car before knowing a suitable maximum budget is something best avoided. So deciding on a maximum budget is a good first step so you can narrow your search to cars in an affordable price range.
If you are going to be financing your new car it is also suggested that you calculate how long it will take to repay a loan. The more you can pay up front the more you can reduce the interest you pay in the long term. Every dollar you save now before you purchase will save you more dollars down the track. So attempt to save as much cash as possible before purchasing your chosen car. This will allow your monthly repayments and possibly even the duration of the loan to be reduced due to the larger sum initially outlayed.
Personal Loans or Car Loans
While you may occasionally see the terms ‘car loan’ and ‘personal loan’ used interchangeably they are different things. Car loans are almost always offered as a secured fixed loan and the lender will want to know if you are buying a new or used car as that can determine the loan conditions.
Personal loans are a more general type of loan normally in the form of an unsecured loan. While a personal loan can be used to buy a car, the lender is generally making finance available for you to use as you please. Because personal loans can be used for the purchase of other items or simply as a cash advance, the terms of the loan often require a higher interest rate often comparable to the interest terms of a credit card.
Understanding Secured vs Non-Secured Loans
With a secured loan the lender has the right to reclaim a car if certain payment terms are not met. If payments aren’t met then the lender has the right to recover the car and sell it to recover as much of the loan value as they can. Any difference in what they are unable to recover is still owed as a debt by the borrower.
Getting finance for a non-secured or unsecured loan will come at a higher rate because the lender has no assets or property to recover if the payment terms of the loan are not met. While the lender may not directly retrieve assets from the borrower they can still pursue the matter in court to be paid back what they are owed.
Fixed or Variable Loan Rates
Fixed rates are most common when it comes to car loans. A fixed rate loan means that the interest you pay on your loan is always the same and you can be assured of what you need to budget for payments. If your financial circumstances change and you would like to pay your loan out early a fixed loan will usually have an early termination fee.
Variable rates may be available when it comes to loan which means if interest rates drop the variable portion of your loan may also drop. It is a two-way street though of course and if interest rates go up then an increase can also happen with the variable portion of your loan.
Timing Your Purchase
Timing your purchase can sometimes help you get a better deal as car prices can change around key dates or as new models are released. Car deals sometimes become available towards the end of the month, or in the last month of a quarter. The end of financial year and end of calendar year can also provide significant discounts as car dealers want to meet financial targets or reduce their stock to allow for new models. As new models are released you may be able to save on a car model that has been superseded even though you still get a new car that comes with all the benefits of a new car – at a cheaper price.
If you can’t afford the luxury of watching and waiting to save a few dollars don’t worry. These days there is so much competition among car dealers that there is always the chance to save on a new car purchase if you know where to look. If you don’t have time to shop around that is one of the advantages of using a car broker because they will do it for you. Even if several dealers are offering exactly the same price you may be able to get a deal sweetened with a few bonus accessories with the help of a car broker.
Is Finance Available on Used Cars?
The short answer is yes. While financing a used car may save you money on the purchase price of the vehicle it is worth noting that many lenders will have a higher interest rate on a loan for a used car. That’s because a used car is seen as a riskier asset than a new car so it’s still worth crunching the numbers to see whether buying a used car is worth the savings over the term of your loan.
Looking for Value – Look to Your Credit Union
Organising finance directly from a car dealer may be convenient especially when they offer you the chance to get a car the same day. However, when it comes to car loans it can really pay to shop around. Comparing car loans available from financial institutions and lending companies can save you big dollars over the course of a loan. When it comes to the best value loans on the market, independent comparison websites regularly advise looking to your credit union.
Credit unions consistently perform well in CANSTAR ratings when it comes to car loans. In fact, for the last several years, credit unions have consistently been responsible for offering car loans that achieved the highest rating of 5 stars on the CANSTAR website.
Credit unions are run for the benefit of members which often results in more competitive rates than those available from other lenders. Rachel Young from MOVE (formerly Railways Credit Union) explains: “Our ongoing commitment as an organisation is to improve the financial position of our members. Whether our members need a loan for a home, a car, or something else, we are looking at how we can save them as much as possible, not profit from them.”
You Can Negotiate Price when Financing
Yes it’s true! Price negotiations aren’t exclusively for those making a cash purchase. If you are looking at financing your car purchase rest assured that dealers are still willing to compete for your business. Our team at Car Search Brokers has helped 1000’s of customers throughout Australia buy new cars with finance at better-than-retail prices.
Car Search Brokers provides independent professional advice on buying and selling cars and we can help make buying a new or used car a hassle-free experience for you. If you would like a hand to sell or trade an existing car we can help with that too. For more information on your options in purchasing a new car with finance or without, have a chat with our friendly team today.