Three Car Financing Options
If you need finance to buy a new or used car, you have three main options:
1) dealer-arranged finance,
2) arranging a loan yourself, and
3) using a finance broker
It's important to understand four things with dealer-arranged finance:
1) There’s a reason Roy Morgan Research ranks car dealers as Australia’s least trusted profession, it’s because they commonly use aggressive sales tactics on unsuspecting buyers. Be very wary when car dealers try to pressure you into any car or associated finance product. NEVER sign anything or pay a deposit on your first visit -give yourself time to cool off and consider your options carefully.
2) they often add extra fees into their arranged loans that you may not notice. These charges might only add a small amount to the regular repayments when paid over the life of the loan. But be aware that those extra repayments add up over time.
3) dealers get a cut of any finance arrangement that they make on your behalf.
4) They may try and sell you add-on insurance and warranties. Be very careful about any dealer-arranged insurance and warranty. They receive a commission on it. A recent report by ASIC concluded that this insurance is "expensive" and "poor value".
Dealers may also try and upsell optional accessories to include in your loan. For example, window tinting or paint protection. They will use words like “investment”, “protect” and “convenience”. They’ll point out that there is no out-of-pocket expense to you because the costs will be added to your loan. Be aware that if you do this, you’ll also pay interest on any accessories for the life of your loan.
Arranging Finance Yourself
There are a range of lenders out there that provide secured or unsecured car loans. If you take this option, it's crucial to do your research. Even a small difference in the terms and conditions of a loan can make a big difference to your repayments. For example, loan terms and conditions may allow a lender to charge:
• a monthly service fee to keep a loan account active.
• early loan repayment fees.
• late payment fees.
Banks and comparison websites love advertising things like ‘Rates from 4.10%’, but the problem is that only a small portion of customers are eligible for these ‘headline rates’. The interest rate YOU may be eligible for with that lender may be several times higher than the headline rate, depending on the car you are buying and your unique financial circumstances. You really need to get a detailed quote from every lender to understand the interest rates they’ll actually charge you.
This can be time consuming, you also should make sure this doesn’t result in too many inquiries on your credit file.
Using a Finance Broker to Arrange Your Loan
Finance brokers arrange car loans for a living. They can provide you with several benefits, including the following:
1) they work for you, not the lender.
2) they take the time to find out your situation, then they recommend the best lender and deal for you.
3) they have access to a wide range of lenders, understanding their interest rate eligibility criteria and how they apply to you.
4) they are across all the latest lending products. This includes secured and unsecured car loans, chattel mortgages and novated leases.
5) they can save you time, money and hassle when buying a new car.
If you’d like a free consultation with one of our experienced finance brokers, just call 1300 301 051 during business hours.
DISCLAIMER : The thoughts and opinions conveyed on this website are those of the authors only and are of a general nature. This does not constitute financial or general advice to you from Auto Loans Group. You should seek your own independent advice from a professional which is specific to your circumstances before considering any of the items referred to in this article, including finance, insurance, and car buying.