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?

How long should the car 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?

0% finance rates - are they 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.