It pays to be picky when choosing a car loan. Getting stuck in a loan with high interest rates or fees can have financial repercussions long after the excitement of owning the car has worn off.
The best way to avoid a bad decision is to do some research on the right loan for you. So to help here are some questions you should ask before signing on the dotted line.
Is this a good interest rate?
Well knowing what is considered a good interest rate in the market is essential to being able to compare the loans on offer. The interest rate environment at the moment is as good as it has ever been but the lowest loans are generally available for new cars where you are securing the loan with an asset. This asset is usually the car that is being purchased but could be a property.
Should you fix the interest rate or take a variable rate loan?
Deciding on a fixed or variable interest rate is also an important consideration. A fixed interest rate will give you peace of mind in knowing exactly what your repayments will be over the life of the loan and make it easier for those who like to budget (and who doesn’t). Having a variable rate loan can be more flexible, depending on the loan; it can allow you to pay the loan off quicker, which can save you on interest; redraw any excess repayments, which can help with unexpected bills; and you can take advantage of lower interest rate in the future. Obviously the downside can be that rates go up.
What is the real cost of the loan?
The cost is not just interest and it is important to look at the fees that will be charged on a once off and ongoing basis. These could be establishment fees, account keeping fees and early termination fees. Checking the comparison rate of the loan is a great way to understand the overall costs associated with the loan. It includes the interest rate and fees associated with a loan to provide to you with a more accurate representation of what you will pay.
Can I make the repayments?
The single most important question that you should ask before taking out a car loan is whether or not you will be able to afford the repayments over the life of the loan. Factoring the repayments into your budget before you take out a loan is a good start. You should keep in mind however that circumstances can change, so allowing a buffer is important. Thinking about your likely financial situation over the life of the loan will also help.
Of course using an accredited financial broker to help you answer these questions is a good idea. So if you are thinking of buying a car and need finance, give me a call and let me help you to make the right decision.