Along with purchasing your house, buying a car is another milestone purchase you’ll make at some point in your life. You want to make good financial decisions for both processes, and this means shopping around for different car loans.
Car loans are usually consumer or business loans that you can get for the sole purpose of purchasing either a new or used car. You borrow the amount of money you need to cover the cost, and you have to repay it within a set time period. This time period is a “term.” Before you get your car, alike a home loan, an application process will need to be completed followed by a signed contract with the lender that specifies the asset security, financed amount, how you will repay it and the term.
This term varies from one year up to seven years. Most lenders require you to make equal repayments on a set basis. For example, $500 every fortnight or every month depending on your loan. If you should miss a payment, you would go into default and be in danger of losing your vehicle. A common feature of vehicle finance your broker or lender will ask you is whether you would like a balloon or residual payment accessed.
A balloon payment refers to a one-off lump sum that you agree to pay your lender at the end of your car loan’s term, in return reducing your overall repayments. Because this payment can account for a significant chunk of your car loan’s balance (the exact percentage will depend on your lender, and the age and type of your vehicle), your car loan repayments are reduced with the agreement for this ‘balloon’ to be paid by the end of the loan.
Example:
Nick takes out a loan for $30,000 to buy a car, agreeing to a 5-year term. This would normally involve making 60 monthly payments of $500, plus interest charges on the full loan balance.
If Nick agrees to include a final balloon payment of $10,000, his 60 monthly repayments will instead be on the $20,000 and cost just $250 per month, plus interest charges on the full loan balance.
By making your car loan repayments more affordable from month to month, a balloon payment may be able to help you buy a car you may otherwise struggle to afford on your regular monthly household budget.
Car loans are available in four general categories. It’s essential that you know what each of them is, so you get the best rate and term for your situation. The four categories are:
Chattel Mortgage
A Chattel Mortgage is a type of loan in which your movable property acts as security. The lender has an interest in the movable property. However, they benefit from a conditional transfer of the vehicle’s ownership until the borrower pays it off. This product is only for self-employed borrowers and usually attract better rates.
Novated Lease
A Novated Lease is a loan that employers commonly use when they offer salary packaging. Your employer will pay for your car’s running costs and your car lease using components of your salary package. Payments are processed via pre and post tax deductions from your salary.
Secured Consumer Car Loan
A Secured Loan uses your car as an asset or collateral against the loan. If you fall behind on payments or fail to pay, the lender can take the car and sell it. If they sell the car for less than you owe on it, they may make you pay the difference. This is product is the typical most common car loan individuals working for an employer take out.
Unsecured Car Loan (Personal Loan)
You won’t be able to borrow as much, but your car isn’t put up as collateral either, so it’s safer for the borrower. These loans typically have higher interest rates because they’re a bigger risk for the lender with no to little security being offered.
When you apply for your car loan, you’ll have to give your lender details about the car you want to buy, proof of your ability to make payments and proof of your identity. You’ll write down your liabilities, assets and proof of income. Your credit rating, employment stability and living situation will also play a factor in your approval odds and interest rates.
Your lender will ask for details that allows them to contact people or organizations to verify your information. This can be an employer, past lenders, an accountant, or a property manager/landlord. Your lender may call these points of contact to see what type of risk you are for them to extend a loan to you.
The approval time for your car loan depends on a host of factors. They include the car’s rarity and how extensive they look into your credit history. Usually, a straightforward car loan on an everyday vehicle usually doesn’t take more than 24-48 hours.
Mostly, a lender will pre-approve you for a set amount and give you a letter that guarantees it. You can take this letter to the dealerships and look for cars in this price range. It’s usually valid for one to three months from the first approval date. If you let it expire, the lender will have to pre-approve you again, and there’s no guarantee that you’ll get the same amount.
Yes of course, if you are ‘asset backed’ and own residential property, lenders see you as less risky and are more favorable to these borrowers. If you are self-employed and meet the borrowers streamlined criteria, your application will be treated with priority and approved quicker than traditional applicants. They also won’t need to see any financials or proof of income. These streamlined products also usually attract better interest rates. We have access to multiple lenders who offer these streamlined products!
There are several important questions that you want to ask your broker or lender when you’re going through the car loan process and buying a car.
A few of them include:
1. What is the interest rate?
2. Are there any ongoing fees?
3. Is there any early termination fees?
4. How long is the pre-approval valid for?
5. Can I pay more than the amount owed without penalties?
6. Is the interest fixed or variable?
Are you ready to upgrade your car and get a car loan? If so, allow our friendly and professional staff to walk you through the process today!
Contact us on 02 8530 1107 or Submit your scenario online
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With our many years experience in the industry, we’ve been exposed to both easy and complex loan scenarios. Each loan we process gets presented to over sixty financial institutions, ensuring we have explored all options possible and are able to provide a solution
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