Car Loans: How to find the best deal
Consumer car loans are a quick and cash-effective method of purchasing a vehicle for personal use. They are available through almost all of the lenders, and most large dealerships offer on the spot financing. However, the convenience of obtaining finance at the point of purchase is frequently offset by higher costs down the track and unscrupulous contracts with difficult exit clauses. In this article, we will explain the basics of car financing and share some tips and tricks to help you ensure your personal car loan is right for your circumstances.
Secured vs. unsecured
Car loans are offered as either secured, depending on the products and policies of the lender. Secured car loans generally have much lower rates than unsecured loans due to the decreased risk to the lender. Although an unsecured loan is not directly tied to the car, the lender still has right of recourse and may repossess the car through the court system in the case of default.
A common marketing trick played by car loan providers is to advertise heavily with a focus on low monthly repayments, misleading the buyer into assuming a low overall rate. Instead, the buyers are shocked to find that they owe a residual, lump sum payment at the end of the loan term and their low monthly rate did not contribute significantly to the debt reduction over time.
A balloon or residual payment can be a good strategy in certain circumstances, particularly when you have the option to upgrade the car at the end of the loan term. Speak with a Lendfin specialist to determine which structure would benefit you and help you reach your long-term financial goals.
Cash price vs finance price
Car dealerships regularly advertise low or no interest loans to attract buyers and encourage a quick sale. Whilst it is usually not a scam, the cost of 0% loans is often recovered by an increase in the sale price. With cash payment or pre-approved finance from a separate institution, it is usually possible to negotiate a significant discount on purchase price.
Car loan vs car lease
Before signing any car finance agreement, ensure that you understand the difference between a lease and a loan. A lease is an agreement whereby the financier provides the car to you at a fixed monthly payment. At the end of the lease term, ownership of the vehicle is retained by the finance company and you may need to pay a large lump sum to purchase the vehicle. On the other hand, a loan may involve the financier taking a mortgage over the car as security, however at the end of the loan term the mortgage is released and you retain full ownership.
As discussed above, low interest car loans offered by dealerships generally need to recoup the cost of the loan through other means. It is quite common to be pushed extra insurances that serve limited purpose whilst arranging your vehicle finance, so take your time to ensure these “extras” are in line with the market. Whilst loan cover and full vehicle insurance are highly recommended, be aware that you cannot be forced to purchase these insurances as a term of the loan.
Whilst on the spot car financing saves you the hassle of visiting a lender, it pays to shop around and research your car loan options. Through our relationships with the Big 4 Banks and multiple smaller lenders, Lendfin has already done the shopping for you. Contact us now to discuss your personal car finance needs and find a deal that works for you.