Applying for a car loan involves significant commitment and financial responsibility. While you may feel impatient to get your dream car as soon as possible, you don’t want to rush the process.
Here are 5 things to consider before applying for a car loan.
Your budget
A car is often one of the more expensive purchases you will make in your lifetime. Before you apply for a car loan, you need to work out your budget and how much you can realistically afford.
While financing helps make it more affordable to buy a new, or used, vehicle, you need to ensure the repayment amounts fit within your budget, and that you will be able to keep up with the regular payments until your loan is repaid.
A car loan calculator will provide you with an initial guide on what your repayment amounts and interest may be over your loan term. It provides an estimate of what your repayments may be, whether weekly, fortnightly or monthly.
This can help inform how much you’ll be able to borrow if it fits within your budget and how much interest you’ll pay. Though keep in mind that using a car loan calculator does not take into account your circumstances which may impact the interest rate you’re eligible for.
Finding the right loan
There are numerous car financing options and loans available, and everyone has different needs when it comes to getting a new vehicle.
You can get a car loan for various types of vehicles, new and old, but you want to find the best rates and terms for you. Car loans can have terms ranging from two years to seven years. The shorter the loan term, the less interest you’ll pay, however, a longer loan term means your regular repayments will be lower. Consider what option fits within your budget and suits you best for the vehicle you’re purchasing.
Spend time doing your research, and don’t rush into the first car loan you come across. If you find the whole process confusing and too time-consuming, it can pay to seek out professional advice.
Working with finance specialists can make it easier to find the right car loan to suit your needs and budget. They will compare car loans from various lenders so you don’t have to do all the running around yourself.
Is the car for personal or business use?
Something you may not have realised as there are different options for car loans designed for personal or business use.
Novated leasing may be a better option if you need a new vehicle primarily for work purposes. A novated lease involves an agreement between you, your employer and the lender. With a novated lease your employer will be responsible for paying off your car loan, directly from your pre-tax salary. This means you won’t need to worry about keeping up with payments. Novated leasing can also have tax benefits for your employer, and if you leave the employer, you retain the vehicle and take over responsibility for the loan repayments.
If you’re buying a vehicle primarily for business use, it may be worth talking with your employer about whether they’d be willing to engage in a novated lease, however, if your car is more for personal use, then you may want to apply for a regular car loan or a personal loan.
Your credit rating
Interest rates can have a big impact on the total amount you end up paying over the life of your loan.
Something to consider before applying for a car loan is your credit rating. Your credit rating helps lenders assess your reliability to paying bills on time. This may influence how much they’re willing to let you borrow, and the interest rates available to you.
Even if you have a bad rating, you are likely still able to apply for a loan, but keep in mind you may pay more in interest. If you can wait to apply for a car loan, it may be worth working on improving your credit rating, as this may make it easier for you to get better rates on your car loan. Though something to keep in mind is that you should avoid checking your credit rating numerous times, as each time it can impact your score itself.
Costs associated with car ownership
There are numerous costs associated with owning a car that is important to consider before applying for a loan.
Outside of your loan payments, interest rates and fees, there are ongoing costs for owning a car. These include registration fees, insurance, petrol costs and ongoing maintenance. Make sure to factor in these costs when working out your budget to ensure you can afford to own a vehicle for the long term.
If you’re looking to apply for a car loan, 360 Finance can help you through the whole process, from finding the best rates to getting your loan approved.