Car Loans

CAR LOANS

Car loans are a popular financing option for Australians looking to purchase a new or used vehicle. They essentially function like personal loans, providing you with the upfront capital to buy a car. You then repay the loan amount, plus interest charges, over a predetermined period.

Obtaining a car loan offers several key advantages compared to paying cash up front. It allows you to purchase a vehicle that may be beyond your immediate savings capacity.

You can start driving your new car right away while spreading the cost over several years through manageable repayments.

Types of Car Loans

There are several different types of car loans available in Australia to suit varying needs and situations. Understanding the distinctions is important when selecting the right auto financing option.

Secured vs. Unsecured Car Loans

A secured car loan uses the vehicle you are purchasing as collateral or security for the loan. If you fail to make the repayments, the lender can repossess the car. Secured loans tend to have lower interest rates but higher penalties for missed payments.

An unsecured car loan does not require collateral. However, these loans are riskier for lenders, so they typically come with higher interest rates and more stringent eligibility criteria like higher credit scores.

New Car Loans

As the name suggests, new car loans provide financing specifically for purchasing brand new vehicles from a dealership or manufacturer. They often come with special low-rate offers and cashback deals from car companies.

Used Car Loans

These loans allow you to finance the purchase of a pre-owned or second-hand vehicle. Since used cars cost less than new ones, the loan amounts and monthly repayments are usually lower as well. However, the interest rates can be higher in some cases.

Lease Buyout Loans

If you currently have a leased car that you wish to purchase at the end of the lease term, a lease buyout loan can supply the funds required for that lump sum buyout payment.

Car Loan Refinancing

Refinancing involves replacing your existing car loan with a new loan, ideally with better terms like lower interest rates or more favourable repayment periods. This can help you save money over the remaining life of the loan.

How Car Loans Work

The car finance process involves several key steps from application to final approval and disbursal. Here’s a look at how auto financing typically works in Australia:

Understanding a Car Loan Application

You may lodge your car finance application to banks, credit unions, finance brokers, online lenders or dealerships. You’ll need to provide personal, employment and financial details like income, existing debts, assets and credit history. Lenders use this to assess your creditworthiness.

Interest Rates and APRs

The interest rate is the cost you pay to borrow the loan amount, expressed as an annual percentage. The lower the rate, the less interest accrues over the loan term. The APR (annual percentage rate) is a broader measure that includes the interest rate plus other fees.

Loan Terms and Lengths

Auto loans typically range from 12 months to 7 years. Longer terms reduce your monthly repayments but mean paying more total interest over the life of the loan. Finding the right balance based on your repayment capability is important.

Down Payments

Many lenders require a down payment or deposit upfront, usually 10-20% of the car’s value. A higher down payment amount provides instant equity and lowers the loan size and interest costs.

Trade-Ins

If you have an existing vehicle, you can trade it in and use its value as a down payment towards the new car loan. This further reduces the loan principal required.

Pre-Approvals

Getting pre-approved for an auto loan amount lets you know your approximate budget and negotiate at dealerships as a ‘cash buyer’. Pre-approval is based on a credit check and income assessment by lenders.

Once approved and all documentation is completed, the lender will disburse the loan funds directly to the car seller. You’ll then start making regular scheduled repayments over the loan term as agreed.

Car Loan Costs and Fees

In addition to the principal loan amount borrowed to purchase the vehicle, there are various costs and fees associated with car loans that you need to be aware of.

Principal and Interest

The principal refers to the initial sum you borrow for the car loan. The interest is the extra cost of borrowing that money, charged by the lender as a percentage of the outstanding principal. Together, these make up your main loan repayments.

Upfront Fees

Most lenders charge an upfront application or establishment fee to process your car loan. This can range from $100 to $700 or more depending on the lender.

Ongoing Fees

You may need to pay monthly account-keeping fees for maintaining the loan account. Lenders could also charge fees for services like extra repayments, issuing statements, etc.

Early Repayment Costs

If you wish to repay the entire loan ahead of schedule, some lenders charge early repayment or termination fees to cover their interest losses. These can add up to substantial amounts.

Extended Warranties & Insurances

Purchasing extended warranties or loan protection insurance from the lender can inflate the overall costs. Carefully evaluate if you really need these extras.

Factors Affecting Car Loan Rates

The interest rate you receive on your car finance can have a significant impact on your total borrowing costs over the life of the loan. Lenders consider several key factors when determining the rates to offer individual borrowers:

Credit Score

Your credit score, which ranges from 0 to 1,200 in Australia, is one of the biggest factors influencing auto loan rates. The higher your score (ideally over 600), the lower the interest rate you’ll likely qualify for as you’re deemed less risky.

Credit History

In addition to your score, lenders examine your overall credit report and repayment history on other loans and debts. A track record of making payments on time can help secure better rates.

Debt-to-Income Ratio

This ratio compares your existing monthly debts against your gross monthly income. The lower your ratio, the higher your perceived ability to afford new loan repayments, qualifying you for cheaper interest rates.

Loan Term

In general, shorter car loan terms of 3 years or less tend to have lower interest rates compared to loans over 5-7 years. Longer terms are viewed as comparatively higher risk by lenders.

New vs. Used

Loans for new cars often have slightly lower rate offers than those for used vehicles, as new cars hold their value better initially.

Vehicle Age and Value

For used cars, the age and sale price can impact rates. Loans for older, less valuable vehicles above 5-6 years generally come with higher interest charges.

Adding a Co-guarantor

Having a co-signer or guarantor with stronger income and credit can provide a boost to your loan application and help qualify for better rates.

Car Finance Calculators and Comparisons

When researching and evaluating different car loan options, there are several useful online calculators and comparison tools that can help:

Car Loan Repayment Calculators

These calculators allow you to estimate your monthly loan repayments by entering details like the loan amount, interest rate, fees and term length. This gives you a better idea of whether the repayments fit within your budget.

Some calculators also show you the total interest payable over the life of the loan at different rates. This breakdown can help you understand the real costs beyond just the sticker price.

Car Loan Comparison Tools

Loan comparison websites let you see current car loan rates, fees and features across multiple lenders side-by-side. You can filter by loan amount, loan purpose (new/used car), loan term and other criteria to view customized results.

Vehicle Affordability Calculators

In addition to loan repayment figures, some lenders provide affordability calculators that factor in your income, existing debts & expenses, and discretionary spending to assess how much you can reasonably allocate towards car loan EMIs.

Utilising a Finance Broker

Car loan calculators and comparisons are excellent tools, but navigating the entire loan application process on your own can be overwhelming, especially with bad credit. This is where a finance broker can significantly benefit you.

Finance brokers offer a double advantage: access to a wider lender network and expertise & guidance. This means they can leverage their relationships with lenders to negotiate on your behalf, potentially securing a better interest rate or loan terms.

Tips for Getting the Best Car Loan Deal

Once you’ve researched lenders and loan options, there are several smart strategies to employ to secure the most competitive rates and terms:

Negotiate Rates and Terms

Don’t simply accept the first loan offer presented to you. Many lenders have some flexibility to negotiate their rates down, especially if you have strong credit. You can also try to get fees waived or the loan term extended.

Understand Dealer Financing Incentives

Car dealers often have tie-ups with preferred lenders offering special low-rate loan programs as incentives. However, these may include restrictions like shorter terms or no negotiation. Make sure you compare dealer loans against other options.

Shop Around and Get Pre-Approved

Getting pre-approved for a loan amount demonstrates you’re a serious buyer ready with financing. This gives you negotiating leverage at the dealership.

Buy vs Lease Considerations

Work out whether buying with a loan or leasing makes more financial sense based on your intended ownership duration and vehicle usage patterns.

Consider Gap Insurance

If your new car gets written off, regular insurance may not cover the full loan payout amount. Gap insurance covers this “gap” between the insurer’s payout and remaining loan, preventing you from being out-of-pocket.

Time Your Purchase Carefully

You may be able to secure a lower rate or better deal by waiting for lenders to offer promotional interest rates during holidays or over-stocked periods when dealers are motivated to move inventory.

Applying for a Car Loan

Once you’ve compared options and are ready to proceed with a car loan, the next step is to formally apply. Here’s what the application process typically involves:

Documents and Information Required

Lenders will require you to provide documentation that verifies your identity, income, living expenses, employment details, residency status, assets, and liabilities. This usually includes:

Proof of identification (driver’s license, passport, Medicare card).
Payslips and tax returns to prove income.
Bank statements showing living expenses.
Details of other loans and credit cards.
If self-employed, business financials and tax returns.

Having these documents readily available can help speed up the application process.

Choosing Between Lenders

Based on your eligibility and loan requirements, you’ll need to decide whether to apply with a bank, credit union, finance broker, or car dealership’s affiliated lender. Each has pros and cons in terms of rates, fees and service.

Submitting Applications

Most lenders and brokers allow applying for car loans online, over the phone or by visiting a branch. During the application, you’ll need to provide all the documented information as well as details about the specific car you intend to purchase with the loan amount required.

Response Timelines

From submission, loan applications typically take anywhere from 24 hours up to 4 business days to be processed by lenders, depending on your situation’s complexity. They’ll conduct a credit check and evaluate your application against their approval criteria.

Pre-Approvals and Pre-Qualifications

Many lenders provide pre-approval or pre-qualification processes to get an initial loan amount and estimate based on a basic credit check, before the full application. This can help streamline and simplify the actual car purchase process later.

Loan Contract Signing & Settlement

Once your car loan application is formally approved, you can proceed with finalising the vehicle purchase and loan documentation to have the funds disbursed. Having patience and being organized with paperwork helps make this go smoothly.

Car Loans for Special Scenarios

While the standard car loan application process is straightforward for many borrowers, there are some unique situations that require additional considerations:

Car Loans for Self-Employed Borrowers

If you are self-employed, a freelancer, contractor or have irregular income patterns, proving your financial capability for a loan can be more challenging. Lenders will typically require at least 1-2 years of consistent business financials and tax returns to establish eligibility.

Car Loans with Poor or No Credit History

Those with poor credit scores below 500 or limited credit histories may find it very difficult to get approved for a standard car loan at mainstream lenders. Their options include:

Applying with specialist bad credit car loan providers (higher rates).
Getting a co-signer or joint applicant with good credit.
Paying a larger upfront deposit to lower the loan amount required.

Car Loans for Borrowers with Bankruptcies

Applicants with past bankruptcies on their credit file face tough odds in the initial 2-3 years after being discharged. Some lenders may still consider them if:

The bankruptcy was due to exceptional circumstances like medical issues.
They can demonstrate re-established credit by paying current debts on time.
A huge down payment or cash deposit is provided to offset risk.

Car Loans for Temporary Residents

Temporary work visa holders and non-permanent residents may struggle getting approved at many banks due to perceived higher default risks. Car loans for this category are more readily available from non-bank lenders by providing:

Proof of valid work visa.
Demonstrating stable employment and residential history.
Having a permanent resident or citizen as a joint applicant.

By understanding their unique circumstances, borrowers in these special scenarios can identify which lenders may be most willing to assess and work with their credit situation.

Apply for a Car Loan with Assured Loan

Assured Loan can help you get the right car loan for your needs, whether it’s for personal or business use. Our experienced brokers will guide you through the process and find you the best loan options. We are a licensed and accredited company with a proven track record of success.

Contact Assured Loan today to discuss your car financing goals and explore your loan options. Call us on 0430 451 901 or click the button below to apply online!

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FAQs on Car Loans

Buying a car is a significant financial decision. Securing the right car loan is crucial to ensuring the monthly repayments fit comfortably within your budget. This FAQ section will guide you through everything you need to know about car loans.