How do credit scores work?
How do credit scores work?
Borrowing money to buy things like houses and cars means you are taking on significant debt to acquire items for your life.
For the initiated, when you take a loan out for an asset, the lender adds interest to the loan which is an amount above the amount you borrowed as a fee for lending the money.
It’s like borrowing a car with half a tank of fuel, when you return it, you will fill the tank up.
Lenders of money such as banks, building societies, credit unions or non-traditional lenders take on risk to extend the loan to you. The risks could include:
- You may pay the loan back late
- You may default on the repayments (not pay at all)
- Your circumstances may change
- You may lose your job or ability to pay
- The market conditions may change
How are interest rates determined?
Without getting into too technical an explanation, the ‘cash rate’ is set by the Reserve Bank of Australia. They meet each month and their role is to assist the overall economy to provide the growth needed to make everyday Australians lives better.
The Reserve Bank doesn’t lend money to you and me, nor does it have branches or ATMs, but the Reserve Bank looks at what is happening in the economy and adjusts ‘monetary policy’ in accordance with those things.
For example, if inflation is too high (prices are going up too fast or not at pace with wages) the Reserve Bank will adjust up the Cash Rate (% it lends money to banks) to slow our spending. (we spend more on mortgage repayments)
Alternatively, if inflation is too low it usually means there is not enough spending going on, so interest rates are lowered in order to stimulate spending in the general economy
There are many factors that determine the Cash Rate
- Unemployment rate
- Inflation
- Wage growth
- The Australian dollar (value against other currencies around the world)
- Australian household debt
- The Consumer Confidence Index
The RBA meets each month to look at a target of inflation of around 2-3%. They will look at everything from what a litre of milk costs to the price of petrol to see what is happening in the economy broadly. It then sets that months monetary policy accordingly (as talked about above)
In the 1980’s, Australia’s banking industry was deregulated meaning the government has less control and the market began to manage itself. In theory, this creates competition and drives up the quality of service delivered as well as innovation. The RBA was no longer government-controlled and acts independently of the Government.
What has this got to do with credit scores?
Now we know how interest rates are set, we can start to understand how those rates are then passed onto to us the consumer.
We’ve already talked about risk. This is a big factor.
Think about it this way. If you had $100 to lend out and you had 3 applicants.
Applicant 1:
Has been in a job for 3 years full-time. Has a mortgage they are up-to-date on payments and never missed a payment. They have a car loan also up-to-date with excellent conduct on the loan. They save every pay and don’t spend more than they earn. They have an emergency credit card with a $1,000 limit.
Applicant 2:
Has been in a job for 1 year and is a renter with no assets, but some savings. They have a car loan that they have been late on a couple of times over the past few years. Has a credit card that has a $5,000 limit but a balance of $3,000. They got a payday loan 3 years ago due to a problem with their pay/bank account.
Applicant 3:
Has been in their job for 6 months and lives in a share house. They have multiple loans with a few lenders. They have applied for a car loan 3 times in the past 6 months and been knocked back. They had a car loan 4 years ago that they defaulted payment on, but caught up the payments before the car was repossessed. They are constantly late with payments on their existing credit commitments.
Which applicant would you be most comfortable lending your $100 to?
Most people would rank them in the order in which they have been put above. Some would not lend to Applicant 3 at all because there is a history and risk of not being paid back.
Second consideration – what interest rate would you offer to each of the applicants if you were going to lend to them?
- Would you expect a higher payback from the higher risk applicant?
- Who would you be competing against for Applicant 1? What if they offered a lower rate than you?
- What would be the easiest way to see each applicants risk profile to determine the rate?
Credit Scores
Without every bank knowing each person’s personal circumstance, we have what is known as credit scores in Australia. This score is based on personal and financial information about you that is kept in your credit report. (this is freely available to you).
How your score is calculated
As mentioned, what is in your credit report determines your credit score calculation.
- How much money you have borrowed
- The number of credit applications you have made
- Whether you pay on time (or at all)
The score is a scale between zero and either 1,000 or 1,200. The higher the score, the more ‘credit worthy’ you are seen to be.
The actual score then helps the lender work out how risky it is for them to lend you money if they decide to at all, and what interest rate would be offered based on the five-point scale (excellent, very good, good, average, and below-average)
A low credit score could actually affect your ability to get a loan at all.
Knowing your credit score can help you get a better deal with finance, especially if it is a high score!
Setting the rate
With the 3 applicants above, most likely Applicant 1 knows their credit score and the lender will provide the funds at a lower rate than Applicant 2 or 3. This is not discrimination, this is about risk. The lender is within their rights to determine the risk and to offer a product/service accordingly. When I talked about the market regulating itself, this is what we are talking about. A person with a good credit score isn’t going to just accept a higher rate, they are going to demand the market adjusts to them.
The higher risk applicant due to their conduct on loans, or the way they have handled money, is going to have less choice and most likely pay more. The market will determine what the higher risk applicant can have, until the day that the high risk becomes a lower risk, this is how the money market works.
Lenders lend based on risk. After all, it’s their money. Just like you wouldn’t risk losing your $100 by lending to someone where there was a good chance they wouldn’t pay you back, lenders base their decisions on risk profiles and act accordingly.
See also: Finance Pre-approvals
My credit score is low – how do I fix it?
STOP applying!
One of the most common mistakes we see potential borrowers make is multiple applications. They will get knocked back with one lender and then go to more lenders.
Each time you make an application, it can drive down your credit score. If your score is already low, it may come to a point that you are completely undesirable to any lender, no matter the interest rate. Take a breath and understand that the lending criteria that has been applied to your circumstance is designed to ensure that you aren’t over extending yourself. This could be from the serviceability of the loan through to the loan to value ratio of the item you are wanting.
It’s tough to accept, but now may not be the right time!
Pay on time
If you want to improve your file, pay your bills on time! If you can’t pay on time due to a particular circumstance, make sure you are ahead of the game and contacting the lender to make an arrangement. This includes phone bills and utility bills as these are the most common items that people default on – affecting the ability to borrow for things that matter like cars and houses.
Stick to your budget
Don’t over borrow! Know your budget, stick to it. Yes, it may be nice to have new shiny things, but if you determine a budget that allows you to save for those items – the future will be brighter for your when it comes to borrowing for assets like homes.
Stay away from pay-day lenders
There are SO MANY lenders in the market place that seem to be offering “Cash in a hurry” or “Access your pay before pay day”, with images of broken fridges or scenarios of the unexpected.
Pay day lending can destroy your credit score in a flash. A main stream lender will see pay-day loans (especially multiple loans) and determine that you do not save for the unexpected, you don’t stick to a budget and you are a high risk.
What about Buy Now – Pay Later
The basic difference between a buy-now-pay-later lender like Afterpay, Zip-Pay etc is simply that you are paying fees instead of interest. It seems great. Get what you want now, pay later! Laybuy without the agonising wait.
If you miss a payment, you are charged. If you default, you will end up with a negative mark on your credit history. It also won’t show on your credit file that you pay ontime, so it won’t positively affect your credit score.
Some BNPL services also do a credit check meaning you will have an enquiry on your file. (check with the service to see if they do) As with the above point, stick to a budget, be disciplined with payments and work out what is more important for your future.
Final word
The finance market is a competitive place. If you have a low credit score, you may think it is unfair. Circumstances in your life have led you to having this score, but with any rating, you have the ability to fix it. It takes discipline and determination. There are many professional financial counselling services that can help you set a budget and even assist you in understanding how you can reach you financial goals. It will be a journey, but it always starts with a step.
Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.
Get In Touch
1800 861 009
Locations
Melbourne
Brisbane
Sydney
Sunshine Coast
Townsville
Hours
Mon:10am – 5pm
Tue: 9am – 5pm
Wed: 9am – 5pm
Thur: 9am – 5pm
Fri: 9am – 3pm
Sat: 8am – 1pm
Sun: Closed
Why choose a Chattel Mortgage
When you first started your business, it was most likely you, a pack of business cards, a phone and a dream.
No matter where you are at in your business building efforts, you should be proud of your achievements!
A lot of small businesses start out lean. Using a personal mobile phone and their own car to drive their business to the next level.
As time goes on – customers and revenue increase, websites get more professional, maybe even a wrap on the car, the personal phone becomes a business account and the personal bank account becomes a business account.
What about business vehicle/s or cars used to conduct business? A lot of small to medium businesses still finance their cars through personal loans or dealership finance. This is more due to habit than anything and maybe not understanding there are products in the market that are designed for business. Is it the best option?
What is a Chattel Mortgage
It is a weird name, but essentially a Chattel Mortgage is finance for cars used for business purposes. The word Chattel simply means “a personal possession” and ‘mortgage’ means that the lender of the money to purchase the chattel has a mortgage or title over the property until the loan is repaid.
The lender takes a ‘mortgage’ over the vehicle as security the same way a lender or bank takes security over the car if you financed it through a secured personal loan. It is still your car, but the security is placed over the car in the event of defaulting on repayments. Once the car is paid off, you take full ownership to sell the car or continue to use it for your business.
How is it different from a car loan?
It works the same way as a normal secured car loan but customisable to what you need now and in the future.
Main points
- Use a chattel mortgage to improve your cash flow
- If you are registered for GST you may be eligible to claim the input tax credit on your next BAS
- General tax deductions and depreciation may be available for the business usage
A Chattel Mortgage…
- Generally has lower rates compared to loans through the bank or dealership
- Has GST, depreciation, and interest able to be claimed back easily
- Has flexible terms, residuals, and options to include extras
- Helps you manage your cash flow by allowing deposits or trade-ins
- Gets you into business asset finance building a credit rating for your business for future needs to continue to grow your business.
Who can take on a Chattel Mortgage?
Many different entities can take out a Chattel Mortgage on a vehicle if the car is for majority business use.
- Employees
- A sole trader
- Partnerships
- Companies
What are the main benefits?
The main benefits of having a chattel mortgage include setting a residual or balloon to reduce the monthly payments, the option or potential to claim tax deductions for business use* and claiming input tax credits if you are registered for GST
What about tax and GST?
Most business people would be using their car for business purposes so you may be eligible to claim a tax deduction against your income for the interest charges along with the ATO set depreciation. Your accountant will be the best person to speak to about what you can claim.
How does the mortgage work?
You own the vehicle, however, the financier will place a mortgage similar to a home over the vehicle as security. Set monthly repayments are made for the term and at the end, the financier will remove the mortgage. If you have set a residual, you can refinance this reserved amount, sell the car and pay out the residual or use the car as a trade and payout the residual.
Who is it suitable for?
Any business that is registered for GST as you may be able to claim the GST from the vehicle’s purchase price as an Input Tax Credit on the next BAS you complete.
** Always speak to your accountant regarding your eligibility for tax writeoffs or GST matters
Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.
Get In Touch
1800 861 009
Locations
Melbourne
Brisbane
Sydney
Sunshine Coast
Townsville
Hours
Mon:10am – 5pm
Tue: 9am – 5pm
Wed: 9am – 5pm
Thur: 9am – 5pm
Fri: 9am – 3pm
Sat: 8am – 1pm
Sun: Closed
Car finance pre approval
What is a car finance pre-approval?
A pre-approval is a lender giving you ‘in principal’ agreement to lend you a certain amount of money for a car. It is finance that is put in place prior to purchase, rather than choosing the car, then seeking the finance
Shopping (research) vs buying
When buying a car, most people will research the car first, test drive. A high proportion of people decide on a car (or at least narrow to the brand and model), test drive, decide, then look at finance. Is it the right way to do it?
Car buyers when looking to upgrade their wheels spend around 59% of the total time of the process researching the car. (Autotrader). On average shoppers take around 108 days from start to finish, so 63 days is spent thinking about the car itself, prior to even setting foot in a dealership.
Usually, the next step is to head into the dealership and test drive. The moment you step into a dealership, you begin to match wits with car salespeople and their finance department. Unless you are a cash buyer, the only barrier to the sale in the mind of the car salesperson is how you are paying for the car. (it's usually one of the first questions they ask!)
They want you to buy even though you may still be researching. After all, that's their job. There is a saying in the car industry. "Getting the customer behind the wheel, sells the steel". They hope that you fall in love with the car and gain emotional attachment. They get you in front of the finance and insurance person to then help close the deal. I mean, why not do it all in one place? It is convenient, and you feel great when you are approved, even though it may not be the best deal you can get.
Apart from not getting the best deal you could get if you spent more time researching the finance, when you engage dealership finance, the only restriction usually placed on the contract of sale is ‘subject to finance’. This means if you are approved, you are going to have to buy that car or potentially face a cancellation fee. You have just moved from shopping to buying in one fell swoop.
The finance and insurance department
A lot of people go into a dealership with a loose budget in mind. It could be a repayment budget or a car spend budget. What tends to happen is the dealership finance person focuses solely on the repayments and whether you can afford just that, rather than the total cost of ownership (everything it costs to run a car) They are skilled at it. It allows emotion to creep in and the budget head you may have brought into the process quickly goes out the window. It is not your fault, it is the way humans work.
Data shows that when buying a car, customers thinking about the finance only takes place in the last 14 days of the process. The finance (or the way you are going to pay for the car you love) is as important as the car you are choosing.
Why is the finance research so important?
Remember that finance involves interest. That is, you borrow the amount you are paying for the car at a certain rate, then there is interest to be paid on top. This can be thousands or 10’s of thousands of dollars depending on the finance deal you get. Doing your research on finance is important to the overall cost of the car you want.
How do you research finance?
It can seem daunting but there are basically a few types pathways in the automotive marketplace*.
- Dealer finance companies - these have direct relationship with car dealers, offering personal loans to customers to finance a vehicle purchase from the car dealership.
- Lenders - these provide the funds for the car loan. Banks, building societies, credit unions etc along with money market corporations and finance companies.
- Finance brokers - these act as an intermediary by matching borrowers to lenders and their loan products, assisting and advising borrowers on the loan application process and negotiating interest rates on loans.
(*Royal Commission - Some features of car financing in Australia)
Hard and fast: If you go through a dealer, you will most likely end up through the dealer finance company. Usually only one or two lenders so your choices are limited.
Do it yourself: If you go through the lenders directly, you will encounter having to do a lot of research yourself, comparing and speaking to lenders to find the right deal for yourself
Compare and save: A broker does this job for you. Their primary role is to match the right lender, not just to your budget, but also to your financial circumstances.
Paying cash gets a better deal?
Generally, this is true. If a dealer has a car in stock they want to move and you have cash, they are likely to wheel and deal with you.
If you finance through the dealership, or use advertised finance offers that promote low rates, you most likely will not get as good a deal.
Pre-approved finance is like cash. Walking into a dealership and being pre-approved means that you are in the drivers seat (pardon the pun).
Low interest or no interest car loans?
See those deals on TV or Facebook offering low rates? 1.99% or even 0%.
It seems too good to be true. Well, most times it is. Check the fine print!
Those deals are usually only available on specific models or variants and the dealer will not budge on the price no matter how hardnosed a negotiator you are. Looking a different model to the ones on offer? You will end up paying the standard or higher interest rate on offer in the dealership.
There also may be a honeymoon period on the rate that will expire mid-way through the loan and you will revert back to a high interest rate.
You may not be able to make additional repayments without penalty or there may be additional fees and charges or higher delivery costs.
At the end of the day, the dealership or manufacturer offering this deal is losing money on 0% as they make a lot of money from finance. Car companies will look to recoup the losses they make on the finance, one way or another.
In a lot of cases, customers found that they were worse off using these deals than they would have been if they had spent the time researching the finance.
Tips to getting the best deal
Do know your limits.. and stick to it
Pre-approvals can be up to a certain amount that you have determined suits your budget. For example, a $30,000 car may have a repayment of $400 per month, you have already added in costs like insurance, registration, CTP and maintenance and know what you can afford. If you have not done this, you may be led down a path that makes you solely focus on the repayment. When it comes time to servicing or replacing the tyres, you end up putting it on a credit card, exploding the cost of ownership of your car.
Do know your credit score
There is a direct link to your credit score and the interest rate you can get. This is your bargaining tool. If you are asset backed (own a home or a mortgage) you can also achieve a good rate with certain lenders.
Credit scores are affected by your conduct on loans.
That is; if you have a job that pays regularly, pay on-time, have no defaults and don't make too many enquiries (shopping around with lenders) you probably have a good score. It doesn't mean if your score is lower that you can't get a loan, it just means your rate may be a little higher. Lenders look at risk factors and your score plays heavily into their calculations. If you have a lower score, they are taking a risk, so their 'reward' or the money they make from your loan is higher.
We can help you get your credit score. Contact us for more information.
Don't confuse what you are doing
There is a difference between shopping and buying. Shopping is the research component. This is where you spend time 'shopping around'. This could be for the car itself or the finance. When shopping around for finance, it is really important that you aren't applying. A good broker will be able to give you a quote on a car without you having to apply. The moment you apply, you have put an enquiry on your credit file. If you do this numerous times, it can negatively affect your credit score for the future.
Don't reveal your intentions
Buying a car is similar to a game of poker. The first person to fold will be the person that loses in most cases. Walking into a dealership announcing you are ready to buy or revealing exactly what your budget is to a dealer is allowing them to take control and to put you into something that you may not be able to afford or even a loan term or package that is unsuitable.
Don't gamble on dealership finance
As mentioned, dealerships make money through their financing departments. Shopping around (making soft enquiries without applying) should form part of your research. Brokers have a duty to ensure that your circumstances and needs are met in the product they are offering. Brokers also make money from the finance, but the laws governing brokers are designed to ensure they are acting in your best interest.
Do get pre-approved
Going into negotiations with a dealer with a pre-approval puts you in the drivers seat. It is then up to the dealer to match or beat the finance deal you already have or to substantially discount the car to offset their potential higher finance cost. If there is no alternative plan and you walk into a dealership to both look at the car and finance, they are completely in control.
Final thoughts
Having a pre-approval in place can mean the process is quicker. In a market with low stock or limited availability, you can snap up the car you want quickly and be on the road in your new wheels sooner rather than spending a few days getting your finance sorted. It also removes the pressure and allows you to make informed decisions about the finance.
Getting pre-approved
Getting pre-approved is simple. You may know the car you want but haven’t ventured into the dealership as yet. We will work within your budget and you will know what limit you have to spend. Once you have found your car, it’s simply a matter of providing us the contract of sale and we resubmit for final approval.
Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.
Get In Touch
1800 861 009
Locations
Melbourne
Brisbane
Sydney
Sunshine Coast
Townsville
Hours
Mon:10am - 5pm
Tue: 9am - 5pm
Wed: 9am - 5pm
Thur: 9am - 5pm
Fri: 9am - 3pm
Sat: 8am - 1pm
Sun: Closed
Getting a great deal with a new car purchase
Most people when buying a car will do some research online and then head into a dealership to test drive a car.
It is at that point that the sales machine of a dealership takes over.
A dealership employs salespeople and those salespeople have targets and a sales system they are trained in to get you into the car.
Car Dealership tactics
Not all car salespeople are sharks, there are some excellent professional car salespeople in Australia - but there are those who don't really care about you or what you want and are driven by commission.
From pressure tactics to plain badgering through constant follow up calls, going to a dealership can be a stressful experience.
How can you get a good deal when the dealership is in control?
Below we discuss the methods you can use.
Pay cash
In the old days, paying cash was king. Dealerships loved cash because it meant that they were paid straight away, and they were able to move stock quickly. Discounts flowed.
In modern times, dealership models have changed. They have their own finance department and a big part of a dealership’s revenue comes from the finance. Cash is no longer king, in fact, you may expect to receive LESS of a discount if you pay cash, no matter how good a negotiator you think you are.
The other issue with paying cash is you are purchasing a fast depreciating asset. The average depreciation (lessening in value) of a car is 19% in the first year and 15% in the second and third year.
If you were to use the cash you have for something else, like an investment or paying down your mortgage to make money from your cash, that may be a smarter move.
The walk out
Other tactics customers employ include the walk out. In the salespersons office the customer will be presented with a price and they will counter that with an offer. If the offer is not accepted, they walk out. The hope is the dealer will come running after them to concede defeat.
This can be a good method; however, you are reliant on the salesperson being desperate to achieve their targets and for their Sales Manager to approve any deal that you put forward. Dealers are also very savvy and understand this tactic. They employ counter-tactics to deal with this.
Bottom line, a dealership has a price they will not drop below as it costs a lot of money to have a car in stock at a dealership. The overheads in a dealership are huge!
The time of the month will also dictate whether this method works. Towards the end of the month usually the pencil is sharpened a lot more than at the start, this is due to targets.
If your offer is realistic, you may get the deal, but in most cases, you will settle somewhere in the middle depending on the popularity and availability of the car.
Buy ‘old’ and in stock
Car dealers will generally be sharper on price for cars in stock over cars they have to swap with other dealers or order from the factory.
Dealers have a system that measures ‘ageing stock’. The longer the car sits on the lot, the more it has cost the dealer and the more motivated the dealer is to sell that car.
If you are prepared to compromise on colour or variant and settle for what the dealer has in stock, you may find yourself with a very sharp deal. This of course is dependent on the popularity of the car. If a dealer knows they can sell it to another person for more because it is popular, then they will likely reject your offer.
Shop around
In the old days, dealerships were owned by families or individuals and you could shop around if you had multiple dealers in the city you reside in. Now, dealerships are mostly owned by large corporations or dealer groups. The dealer on one side of town is likely owned by the same company that owns the dealership on the other side of town. Shopping around is also time-consuming and somewhat exhausting.
You cannot generally just call up and get a deal, you must go in and spend time. Or you must look at buying outside of your local area which means the car will be trucked in and dropped off to a depot or your home. You miss out on the car handover – which is the feel-good part, with a nice smelling clean shiny car instead of receiving a truck soiled vehicle from a nameless truck driver.
There are other methods customers employ, however, these are the most common. Some work and some do not. When going up against car salespeople, you need as much help as you can get.
Use a car buying broker
There are car buying brokers who can do the negotiating on your behalf. These services aren't free, but a quick Google could save you hundreds if not thousands off the purchase price of your new car.
Timing is everything
Dealers have targets, both from a business perspective and also the manufacturers they represent. As the end of the month approaches dealers to become far more negotiable than at the start of the month, especially if they haven't hit their target. Individual salespeople are more likely to bat harder for you if they aren't hitting their targets that month individually.
Some tips for this. You need to be ready to go now. Have your finance in place and be ready to sign on the dotted line. Most of the deals you'll be offered in the last 10 days of the month will expire at the start of the next month. You can usually tell if the dealership is busy on a Saturday and don't be afraid to ask "how's business? Are you guys busy?". Looking around the dealership will tell you if they are or not. The quieter it is, hopefully, the more likely they will be to wheel and deal.
Pitch a price that's low, but not ridiculous
Doing your research prior will assist with this. It should be understood that a base model vehicle will have less margin (profit) for the dealer, so asking for thousands of dollars off a car that sells for $19,990 probably won't fly. If you start high, you have nowhere to go, but if you start low, you can always come up from that point.
This is my limit
You can also set a maximum limit of what you can spend. Use the husband or wife as the backstop "My partner said I can't spend more than..." even if there is no partner! Just make sure if there is a partner, they aren't sitting there with you when you use this - and also are really hard to contact if the salesperson asks you to get them on the line.
Don't trade unless you absolutely have to
Having your finance in place first and if you can sell your current car elsewhere, do it. What you see your 2003 Commodore being worth, the dealer sees probably 25% of that value. They may give you a discount on the car you're buying, but they'll make this up by low-balling the trade.
Accessorise, but don't go overboard
Accessories personalise the car and make it yours. You just have to ask yourself whether branded floor mats are important to you and if you are willing to pay full price for them. Contrary to popular belief, new cars don't come with a full tank of fuel or carpet mats, these are all options. Only get the accessories that you need!
Dealer delivery charges... what on earth?
It comes up on every quote you'll get from a dealer. Most people say "But I'm picking the car up??!!". Dealer delivery is the money dealers charge to 'prepare' the car for you. Detailing and covering their costs. But $2,000+ is just ridiculous. Try to negotiate this to under a grand. If they don't budge, ask them what's included in the charge to justify it. Walk out if necessary!
If it's popular, good luck
If a particular car is popular, you are going to find it more difficult to get a great deal. New models are usually hard to discount unless they aren't selling well, then you have to ask if it's the right car for you! Usually after a few months the demand will die off and you will find yourself in a good position to negotiate. If you line up for every new iPhone, then you may have to pay the full price.
The smart choice
Journey Finance takes all this hassle out of the process and negotiates the best deal we can get for you. In 99% of cases, the deal is local which means you get the support of the dealer if things go wrong and ongoing personal service.
Get In Touch
1800 861 009
Locations
Melbourne
Brisbane
Sydney
Sunshine Coast
Townsville
Hours
Mon:10am - 5pm
Tue: 9am - 5pm
Wed: 9am - 5pm
Thur: 9am - 5pm
Fri: 9am - 3pm
Sat: 8am - 1pm
Sun: Closed
Common questions when it comes to car finance
Everyone gets excited about buying a new car – but what are some common questions people like you ask?
What is the interest rate?
Of course, this rates highly (pardon the pun!) The interest rate, the term of the loan and the size of the loan determine the repayments. It is important to understand that different finance products attract different interest rates. For example a secured personal loan may have a better rate than an unsecured loan.
Why? In a secured loan, the car itself creates the security for the financier in case you don't make repayments and the risk is lower for the financier. They would repossess the car and sell it to recoup their costs. With an unsecured loan, no such security exists, so the risk is higher and the interest rate is higher.
Make sure you get a comparison rate that takes into account any fees or charges and be prepared to shop around or negotiate.
How long should the loan term be?
This depends on your circumstances. Some people keep their cars for a long time, others for just 12 months. The type of finance coupled with your requirements and goals needs to be considered.
Often people who turn their car over regularly will opt for a lease. They don't own the car, the finance company does and the customer leases it for a period of time. This is not always the case as other people will still use traditional finance, sell the car at the end and use the proceeds as a deposit on their next car.
When deciding term, you should look at all the variables including total cost of ownership, interest paid, and what the car is worth at the end of the loan. (does it have good resale). You can do research on this on websites like Redbook.
Can I afford this?
When in the emotional pressure cooker of buying a car, often people think in terms of the repayments alone whether they can afford their car. You should take into account the total cost of ownership, including fuel, registration, insurance, tyre replacement, and service and maintenance. Sounds boring, but knowledge is power.
Going to a dealership knowing exactly what you can afford will neutralise dealer tactics of having you focus on the repayment. Does this fit into your budget? It's much easier if you know exactly how much a car costs to run on average per year. The RACV has a handy guide.
Is 0% or low interest real?
There is much conjecture about 0% or really low-interest rate offers. These offers are mostly provided by the car manufacturer and seem really enticing. But, do they deliver what they promise?
Usually, no. The offers are available on specific models, not the whole range. For example, Car A may have an offer of 0%, but car B does not.
The other issue is how long the low-interest rate runs for. Usually, these rates are for 12-24 months and go back up to a normal interest rate. Surely, given a lower rate for the first 2 years you have saved money?
The answer is also in most cases no. If you could negotiate a better deal with the dealership it would work out better, but, these offers mean you can't negotiate. There are complicated relationships between financiers and dealers and bottom line, the dealer and the financier doesn't lose out. You will pay.
Got other questions about ca finance?
Journey Finance is a car finance broker. Our goal is to get you the right car and the right type of finance for that car. Our highly trained customer service team is here to help you every step of the way.