How to Applying For a New or Used Car Loan

When applying for a new or used car loan work out what you can afford. Once you have done your budget and worked out what you can afford to pay on your car loan start looking for cars that fit within your budget.

A good idea is to arrange your car loan before you go looking at cars. A pre approval will put you in a good position to negotiate a better deal and ensure that you don't get signed up for a car or a loan that doesn't meet your needs.

There are many ways of structuring your loan

For non business use or personal use the most popular loan is a secured loan where the car is used as security for the loan. This method is the most common way of financing a car as the interest rate for a secured loan is usually at lower rate than an unsecured loan.

A secured loan allows the lender to take security over the car until the loan is out.
The loan can be paid weekly, fortnightly or monthly. You may have a loan that has a balloon payment or residual. This is a deferred payment or final payment that is due at the end of the loan. This can result in lower regular payments but on the down side will result in a higher amount of interest on the outstanding balance.

You also have a large final payment to make if you wish to own the car. If the car loan is for business use you can choose to Lease, Hire Purchase or use a Chattel Mortgage to purchase the car. We discuss these options under business loans.

How Long Can I Spread my Loan Over?

Car loans and unsecured personal loans vary between one and seven years. Paying off a car loan over one year will mean the repayments will be high and the interest expense lower. Whereas over seven years the repayments will be lower but the interest amount higher.

Ask your lender or Loans broker if the repayments are flexible so you can pay extra if you wish to. Some Loans companies will let you have a payment holiday if you are in advance.

Interest rates

The interest rate you are offered will depend upon whether the loan is secured or unsecured and your personal credit worthiness. The better your credit or the greater your ability to repay the loan, the chances is that you will be able to get a lower interest rate.

This is a good reason to get a pre approval for your car loan before deciding on the car you wish to buy. You may be offered a loan by the dealer at a higher rate than you could get having a Loans broker like arranging your loan.

Some lenders will be able to offer you a fixed interest or a variable interest rate. You should consider the length of the loan term and the interest rate environment before deciding. Both options have their benefits and pitfalls.

Lenders and brokers will quote an interest rate and a comparison interest rate.
The comparison interest rate takes into account an example of a similar loan and factors in the various fees that are payable.

You should not only compare the interest rate but the fees involved as well.
The repayments for a loan with a lower interest rate may actually be more than a comparable loan with a higher interest rate but lower ongoing fees.

Fees and Charges

Some Loans companies and brokers charge a range of fees.

Establishment Fee
Lenders will charge a fee to establish the loan which is usually added to the loan amount.

Origination Fee
Most dealers and brokers will charge an origination fee. This is a brokerage or dealership charge.

Ongoing Fees
Some lenders will charge a monthly or fortnightly fee called an account keeping fee.

Early Exit Fees
Often a lender will charge you a fee to exit or finish a loan early.
You should always ask what the exit fee is and how it is calculated.
The longer the loan runs the less the early termination fee will be.

Late Payment Penalties
Most lenders will charge you a late fee if you do not pay on time.