June 1, 2022
Car loans are one of those things where a small change can make a big difference so these car loan tips can really help – that’s in terms of dollars and sense.
Top 7 car loan tips
1. Be 100% sure it’s for you and your needs
Some people look past what they need and go for vehicles they ‘want’. For example, buying an expensive off-road vehicle when they only go off-road once a year or so, or a luxury vehicle when they work from home.
Depending on your stage of life, future plans and budget, look at vehicles that are best for you.
Also note that buying a “boring” car or one that you’re not interested in can often lead to neglect which, in turn, can lead to increased depreciation and a lower resale value.
Speaking of resale value, certain models from certain brands tend to attract more buyers and therefore a higher price. For example, SUVs and utes from makers like Toyota, Mazda or Ford often hold their value well.
In short, look at cars you won’t regret owning.
2. Be 100% sure it’s for your FINANCIAL needs
This car loan tip relates to the bigger picture of finances. Someone might require a vehicle that allows them to travel further for work and therefore earn more money.
Someone else might need a car that can accommodate tools while many young people want to build credit too.
Building credit means completing (paying off) a smaller loan as per the loan contract which can boost a credit score because it shows future lenders that you have the capacity (and trustworthiness) to pay off a debt.
People do this if, for example, they’re planning on buying a house in the future – a higher credit score is a huge benefit for borrowers.
3. Consider a deposit
A deposit is a fantastic tool when it comes to car loans – they can increase your chances of approval, potentially lower interest rates and decrease the amount you need to borrow.
Paying a deposit also means you’ll own some of the vehicle straight off the bat, which is important to some people.
There’s no rule on how much a deposit should be, but usually at least a few thousand dollars will suffice, depending on the value of the vehicle.
Furthermore, saving for a deposit in the lead up to getting a car loan can show a lender (eg. a bank) that you’re good with money and have surplus funds left over each pay cycle for loan repayments.
4. Know the lingo
It can be tough talking to professionals, considering options or even researching car loan tips online without knowing what the specific terms all mean.
This can be especially true when resources, including people, assume you know what they’re talking about.
Here are a few common car loan words:
Interest rate – represents the excess or additional money you’ll pay in order to borrow the money for your car. Getting the lowest interest rate possible for your circumstances is the goal of many borrowers.
Comparison rate – this is the interest rate PLUS all fees and costs. Most loan products don’t ONLY add on an interest rate, they also come with fees such as an account keeping fee and/or establishment fee.
Credit file (report) / credit history – typically a PDF, this document details someone’s past performance in repaying credit (eg. a phone plan or other loan).
Default – a missed repayment on a previous or existing loan.
Check out all the car loan words here.
5. Keep the loan term as short as you can
This might be tough because a shorter loan term means higher scheduled repayments which can look scary but if you zoom out, you’ll likely be better off.
Generally speaking, the longer the time you owe money, the more interest (in terms of dollars) you’ll have to pay.
The maths can be tricky but luckily there are simply solutions like our loan calculator.
6. Avoid interest rate tunnel vision
It pretty much goes without saying that getting the lowest interest rate is a great way to go – but don’t forget to take all aspects of a loan into account.
A low rate might be attractive but what about the other fees? For example, early repayment fees or monthly fees?
The bottom line is, make sure to read and understand what you’re looking at when considering a loan product.
7. Understand credit reports
Aka ‘credit files’, these reports, typically a PDF generated by a reporting agency detail and rate a person’s ability to repay a future loan (credit) based on their past financial activity.
Loan assessment teams use the reports to get an idea of how “creditworthy” a prospective new client is. On the one hand, they don’t want to lose money if someone can’t or won’t repay the loan, on the other hand, like all businesses, they want to gain customers – it’s a bit of a balancing act.
If an applicant has things like defaults and outstanding (overdue) utilities bills, an assessment team will view them as a higher risk. An applicant with a perfect repayment history on a past loan will appear as a lower risk.
You can view your credit report for free here. Note that simply viewing a credit report won’t affect it.
Car loan tips conclusion
Like many things in life, the more details and information you have, the better your decisions can be.
Armed with the above car loan tips, you’ll be in a far better position than simply going in blind and alone.
If and when you’re ready to get a get started on the road to your new car by matching to lenders based on your profile, start with an OnlineLoans quick quote.