If you’re looking at buying a new car it’s really important that you take some time to shop around for the best finance deal. A car loan is something that you will generally have for up to 5 years, and interest rates can vary between less than 5% to over 20%!
Interest Rate – What Difference Does it Make?
If you compare car loans in Australia you will see what a difference the interest rate makes. For example, if you borrow $30,000 to buy a car and the interest rate is 8% over 5 years, you will pay total interest on the loan of $6,498. If the interest rate on the same loan is 20% you will pay total interest of $17,689. That’s more than $11,000 extra in interest to buy your car!! As you can see, it pays to get the best rate you can! Interest rates are at historically low levels at the moment so it is possible to achieve a great loan by shopping around.
Interest Rate – Special Introductory Rate Warning
Some loans have a really low interest rate to begin with (to draw you in) but during the term of the loan the interest rate increases to a much higher rate to make up for it. So if you get a special introductory rate make sure you find out how the interest rate will change for the rest of the time that you have the loan.
Fees and Charges
Now the calculations above don’t consider any fees and charges that the loan might have, and it’s really important that you know what the TOTAL cost of the loan is before you agree to it. Some loans will have a low interest rate but high fees and charges. These can include:
- Application fee or Establishment fee – this varies but can be $250 or more
- Monthly account fee – with some lenders this is $10 per month
- Early repayment charge – this may apply if you pay the loan off early, so it is worth being aware of this at the start.
- Late payment Fee – if your repayment is made more than 5 days after the due date you might be charged $20 each time it happens.
Lump Sum or Balloon Payments
Beware of low interest rates with repayments that don’t actually pay off all of the loan by the end of the loan term. These loans were set up so that they cost less each month to have the car loan, but they don’t pay off the cost of the loan. So for the 5 years of the loan you pay smaller repayments but then 5 years later, when your car is probably worth a lot less than when you bought it, there is a big final repayment owing before you own the car. The lump sum could be $5,000 for example.
Maybe this loan suits you because you knew your pay would increase over the 5 years, after you finish studying and get a full time job, or you were coming in to an inheritance (?!) but make sure you know how much it is and when it is due BEFORE you take out the loan.
So make sure you take the time to find the loan that suits you best. If that all sounds too difficult (or boring?!) there are even people who can do it for you! I have a range of loan providers that I use and they can give you a free assessment of the best loan that suits your needs. I only use companies that provide great loans and great service, so if you want someone else to do the loan shopping for you just visit my Enquiry Form, fill in your details and I will send it to the people who will be the best match for you – let’s get you into your new wheels!
If you have any questions about loans or would like to share your own experiences with comparing car loans in Australia please leave a comment below. I’d love to hear from you!