Best Way to Finance a Car in Australia: A Guide
Buying a car is perhaps one of the most exciting experiences you ever have to go through. It’s a crucial decision and one that will require you to invest a considerable amount of money in the process.
Unfortunately, it can be one of the most stressful too. The fact that it is such a large purchase makes it a really high-stake decision and you’d certainly want to do it right. More than just choosing the right car, you need to make sure that you find the best way to finance a car Australia.
Know your credit score
Before you go about checking what financing options are available for you, secure first a copy of your credit history. Your credit score is a reflection of your debt and borrowing history and is an indicator of how well you have managed your borrowing in the past.
Financing institutions, banks, dealerships and other places that could possibly extend help with your car financing needs will assess whether you would be worth the risk lending money to or not based on how good your credit record is they may even refinance a current arrangement.
Go for shorter loan terms if you can afford it
Most people often have this mindset of going for longer loan terms so they will have to make smaller repayments every month— making the whole repayment process significantly more comfortable for them.
While it does seem to feel so much easier to pay back what you owe if you do it in smaller monthly payments, interest rates can skyrocket the longer the term is. In addition, a car is a depreciating asset and by the time you have finished paying the car loan off, the vehicle may have significantly depreciated to a point where it’s hardly worth what you have paid for it in total.
Put huge deposit down
If you can afford it, go for a big deposit down. It’s always better to save up as much money as you can before shopping around for car financing options. When you make a big deposit down, this will be slashed off whatever amount you need to borrow.
This is especially true if you’re getting a brand new unit since their depreciation rate is way faster than used ones. Whatever the amount of the vehicle is, consider making at least 20% of that or more, if you can afford it.
Pay miscellaneous costs in cash
You’d be surprised at the number of miscellaneous costs that are involved in a car purchase. This includes sales taxes, registration fees, extended warranties, documentation fees and a whole host of other extras. Adding these items into the amount that you will be seeking financing for is only going to increase the amount you need to borrow and the interest rate.
However, they will not do anything towards increasing the overall value of your car. So, if you can, pay them in cash.
It’s quite exciting to be buying a new car and oftentimes, in the excitement, people often forget the tons of financing options that are out there. Many end up taking the plunge on the first financing provider that says yes to them. Understanding what car loan options are out there and knowing their upsides and disadvantages will help you make a better, more informed decision this decisions is more important if you have bad credit as the rate may be higher.
- Standard Loan
This is financing you get from standard loan providers like a credit union or a bank. You will be lent the money you need to buy the vehicle you want. Considered to be the simplest loan form but it requires the borrower to be financially sound. The loan can be secured or unsecured and in most cases, the vehicle will serve as the loan security.
- Commercial hire purchases
In this setup, the financier will buy the car which is then hired to their consumers for a specific period of time. Ideal for businesses and individuals, the setup requires a monthly payment that is designed to get the loan paid out in the period agreed. The vehicle ownership then gets transferred to the consumer after the payment period has been completed.
- Finance lease
For this type of car financing, the financier will purchase the car and then have it leased to the consumer. This offers the advantage of the motorist being able to immediately use the car without any need for capital outlay. Consumers will be expected to pay a fixed monthly rental for the vehicle and will also be responsible for the regular maintenance of the unit. After the lease period has been completed, the consumer has the option to return the car, refinance it, sell it or buy it for whatever its residual trade-in value is.
- Novated lease
In this arrangement, an employee, his employer and the financier are involved. The employee will lease a car from a financier and have his wage deducted of the vehicle benefits he is getting. The employer is responsible for paying the car financier via a novated deed using the employee’s wage. Upon the termination of the employment, however, the employee will bear the sole responsibility for paying off the car.
- Chattel mortgage
This fixed loan involves a financier advancing money to purchase a vehicle. A mortgage is held over the vehicle and uses it as loan security. Motorists availing of this setup can finance the entire purchase price, use a trade-in or make a deposit upfront. Residual payments can also be set up once the term ends.
Getting a car purchase financed shouldn’t be intimidating when you know what to do and what choices are out there for you. Taking the time to do your homework will help you make better decisions later.