How Does Car Fin­ancing Work? (Frequently Asked Questions)

Questions About Car Financing:

1. What are some common mistakes when financing a car?

When you’re putting together your car finance plans, here are a few things to avoid:

• Not checking your credit rating before car shopping is one of the biggest mistakes you can make. If your credit rating isn’t healthy your eligible interest rate may be too high, disallowing you to shop with the confidence in knowing what cars fit your price range. If you have bad credit, work on improving that first before visiting a dealership.
• Not knowing what you want when negotiating can put you in financial straits if you’re not careful. Unless you’re shopping with the exact vehicle and features in mind, a skilled salesman may steer you toward a purchase that may not necessarily be right for you. Enter a negotiation with confidence and know what you want, and never let the salesperson decide for you.

2. Can I get a loan even if I have bad credit?

Getting a car loan when you have bad credit isn’t impossible, however, it can certainly narrow down your potential car choices due to the higher interest rates you may be eligible for. Working on your bad credit rating before you go car shopping is certainly in your best interest. Here are a few things you can try to improve your credit rating:

• Paying bills on time
  A record of consistent and timely payments will substantially assist in improving your credit rating.
• Don’t apply for new credit
  A lender or financer may not look kindly on the fact that you applied for new credit (even if you were approved) when you were already in a financially precarious position.
• Pay off your debts
  The sooner you can free yourself of any outstanding debts or loans, the sooner they will disappear from your credit checks.
• Keep your credit card balance low
  This one is a no-brainer; the lower your credit card balance is (consistently), the higher your credit rating will be.

3. Can I pay my car loan off early?

Paying off a car loan early is an enticing idea to most, as it frees you of debt and allows you to focus more of your income on other things. Here are a few things to take into consideration before paying off your loan early:

• Ensure you can pay off your car loan early without incurring any penalties. Depending on the terms of your lending contract, car loans may have early termination fees attached to them which may add to your debt instead of minimising it. Though most car loans allow for an early pay-off, make sure you check the fine print first before paying off your loan early.
• Paying your car loan bi-weekly can help you make your payments faster. It’s as simple as dividing your monthly car payment by two and making that payment every two weeks, as opposed to a single payment every month. The biggest benefit to bi-weekly payments is that you will pay less interest over the life of the loan due to the fact that your balance is continuously decreasing.
• Refinancing to a lower interest rate can also help with paying off your debt faster. If your credit rating has improved since you purchased your car, you may be eligible for a better interest rate which will reduce your overall payments over the life of your loan.

4. When is it a good idea to refinance a car loan?

Refinancing your car loan to a lower interest rate may help you pay off your loan sooner. Here are some key things to consider when you think refinancing your car loan may be right for you:

• It’s a good idea to refinance if you can borrow at a lower interest rate. The lower rate will allow you to pay less for the car after taking all other costs into account. Keep in mind that most interest is collected during the early stages of the loan, so the sooner you can reduce your rate, the less you’ll have to pay.
• If your credit rating has improved, you may be eligible to get a better loan. You may now be qualified for a lower rate, you may be able to lock in a low fixed rate or have a co-signer removed from the loan.
• Lower monthly payments are a great feature of refinancing your car loan. With your outgoing expenses being reduced, you’ll have better cashflow every month. While lowering your monthly repayments may be necessary, understand that extending the term of your loan may result in you paying more interest in the long run.

Questions About Car Buying

1. Why use a car buying service?

Visiting a dealership and negotiating with a salesman is an experience most people dread. Once you’ve decide on your preferred car model, car-buying services use certified representatives to act on your behalf. Read on to discover some benefits of using a car buying service:

• You’ll save time. Most car buying services do the majority of the research for you. Let them know what type of car you’re looking for and they’ll save you hours of web browsing and dealership shopping.
• You’ll have peace of mind. Car buying services specialise in one thing: cars. If you don’t feel you’re very knowledgeable when it comes to cars and their features; their certified representatives will be at the ready with a wealth of information, ensuring you’re always kept in the loop.
• A weight will be lifted off your shoulders. We generally have a lot of things to worry about, and finding the perfect car at the perfect price can be the perfect storm of anxiety a lot of us would prefer to avoid. Leaving the search to the professionals can alleviate any undue stress.

The AutoCarLoans car buying service is free and enables you to get obligation free quotes. Contact us if you are interested.

2. What should I look for in a car finance broker?

A car finance broker’s sole objective is to find their clients the best car loan on the market. With dozens upon dozens of lenders to sift through, the services of a car finance broker could be essential in find the best deal. When selecting a car finance broker, be sure to keep the following in mind:

• Is the car finance broker licenced and accredited? If the broker isn’t fully licenced, or a credit representative of an Australian Credit Licence holder, they may not be operating legally. With this licencing, should come a plethora of lender accreditations. If they don’t have a selection of good lenders (at least 10), they may not be experienced.
• Experience is essential when deciding on a broker. This ensures a seasoned professional is advocating on your behalf, and not a rookie who could fail to identify all the options you are eligible for.
• Are they an established business? The age of online fraud is certainly upon us, so you want to make sure the broker you’re dealing with is an established business operating in Australia.

3. When are the best times to buy a car?

Before you consider purchasing a car, ensure you’ve done thorough research into both the type of car you want and your credit history. Once you’re ready to knock on dealership doors, consider the following:

• Is there a new model on the market? Dealerships often mark-down the cost of vehicles that are about to be superseded by a newer model, allowing consumers to get a better price on a car that was previously out of reach.
• End of financial year sales are significant cost savers when purchasing a car. Dealerships often have a quota of vehicles they need to clear before the end of the financial year, allowing you a bit more negotiating power.
• Is there an ex-demonstrator or ex-executive option? Dealerships often provide vehicles to their employees as incentives for working in the business. Once these vehicles have been used for a certain amount of mileage, they go on sale at a drastic reduction of the sticker price.

4. What car dealer tricks should I be wary of?

Car salesman are generally the most unappealing aspect of a new car purchase. When discussing your purchase with a dealer, be sure to keep the following traps in mind:

• They might tell you that your credit rating is poor. If you haven’t checked it yourself, you’d be inclined to believe them. This allows them to offer you a higher interest rate when you might be eligible for a lower one. Ensure you know your credit rating before entering a negotiation.
• Get a copy of your quote in writing. Car salesman will disarm you with a smile, laugh at all of your jokes and make you feel like you’re the most important person in the room. They might act like they’re your friend, but it’s important to remember that they are doing their job, and will quickly disregard an offer you’ve made if it doesn’t align with their sales strategy. A car dealer will often say “We can get you finance at 4.50%”, without bothering to check what finance products you actually qualify for. Then when you go to collect the car, you find out it’s actually 8.50%, with pressure applied to sign up so you can take the car home.
• Don’t agree to any add-ons on the spot. “Paint protection” is a favourite of dealerships, and they will make it sound like a steal at “only an extra $50 a month.” That $50, over a 4 year loan, will end up costing you $2,400. Know which add-ons you really require (if any), and the full cost of them over the life of the loan.

All these are good reasons to get your finance pre-approved through a qualified finance broker, rather than rely on the one or two finance options your car dealer has.

Car Financing Questions Business Owners Ask

1. As a small business owner, what documents do I need to get a car loan?

Purchasing a vehicle as a business owner can be the first step in taking your small business to the next level. Whilst it can be a daunting process, we’re here to lighten the burden with a quick checklist of the documents you are likely to require when applying for your car loan:

• Proof of identity
• Proof of ownership of the business.
• For a ‘full doc’ loan, Business documents such as cashflow statements and tax returns. Ensure these documents present a positive cashflow.
• If you’re a sole trader, you may need personal documents such as a copy of your driver’s licence, proof of residence and potentially personal references.

2. Can I apply for a car loan even if I’m self-employed?

You can apply for a car loan if you’re self-employed. When applying for a loan, you may need the following:

• A copy of your driver’s licence
  A valid driver’s licence will be required to verify your identity.
• Proof of your monthly income
  Lenders will need to know you can handle the payments when you are granted the loan, so you may need to provide bnak statements or tax returns depending on the lender.
• Proof of residence
  Another step in the identity verification process, the lender may need to know you live at the address listed on your driver’s licence.
• Personal references
  Whilst not a requirement by all lenders, some will ask for personal references from friends, family, co-workers etc. so be sure to have some contact information readily available.

Do you have any lingering questions that weren’t covered above? The team at Auto Car Loans are readily available to answer any further questions you may have. Feel free to give us a call on 1300 301 051 or reach out at any time at [email protected] to learn more.

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.