Most people don’t realise that the interest rates for new car loans change depending on your financial situation. To get the lowest interest rate you need to make sure that your finances look the best they can. So what do I mean by this? Here are several steps you can take to make yourself more attractive to a lender so they will want to give you a loan:
Be Honest about your Situation
Lenders will check your Credit Report to see whether you have any outstanding debts, what other loans you have applied for, if you have any bad credit history like bankruptcies. It’s amazing how many people forget to mention major financial problems in their past, and when the lender finds evidence of them (which they always do) then they can get suspicious about what else you might be hiding! It’s best to always be very open about any bad circumstances in your past because then you can explain them and the circumstances that caused the problem to occur and offer explanation of why that won’t ever happen again.
Does that sound confusing? To give you an example, I had a home loan client who said they had no credit problems but when the lender investigated their history they found that they had an electricity bill that hadn’t been paid from 12 months before. In this case it was from a property that they had been renting about a year before. They moved out of the unit, didn’t have a redirection on their mail and the bill never reached them. The electricity company would have sent them a couple of notices about it but they never received them. From the electricity company’s position they had an unpaid debt and it was added to their credit file.
In that case they paid the outstanding bill and the lender was happy to offer them a loan at the interest rate we applied for. But if they had lots of instances of unpaid bills on their file then lender has to look at their history and conclude that they aren’t good at paying their debts, so they are a high risk client and the lender needs to charge them a higher interest rate of interest.
So It’s All About Risk.
The less risky you look to a lender, the happier they are to have you as a client and so the lower the interest rate they can offer you. So what do you do to make yourself more attractive to a lender? Here are a couple of tips to get you started:
- Get rid of any credit cards or store cards you don’t need. When lenders look at credit cards they have to assume that you could go out tomorrow and spend the lot. If you have a $15,000 credit card, it’s going to drastically reduce the amount they will lend you. This is because they calculate what your monthly repayment would be if you spent to the limit. Most calculate it at about 3% of the balance. So if you have a $15,000 credit card, that means that you would have to pay $15,000 x 3% or $450 each month in repayments. When the lender looks at how much money you earn each month, they will take away $450 first before they look at how much you have left to pay the repayments on your new car loan.
- Pay your bills on time. Pay your bills before they are due, and if you disagree with a charge on your water, electricity or phone bill you are safest to pay the bill first and then discuss it with them afterwards – they will refund the money to your account if they have made an error, and it keeps your credit file clear. If you can’t pay the bill upfront get in touch with them and let them know that you have a query with the charges and ask them to put a note on your file so that they don’t take overdue action until the matter is sorted out.
- Check your credit file. order a copy of your credit file and just check that there are no mistakes on it. It’s much less stressful to talk to someone about paying out an outstanding debt BEFORE you are waiting for approval on a loan for your new car! In my next post I’ll run through how you can get a copy of your credit file and what to do if there are unexpected things on it.
- Reduce your other debts. Just like credit cards, other debts are going to reduce the amount of money you can borrow or increase your interest rate. If you have a personal loan that you pay minimum repayments on every month, try and pay it off or at least reduce the balance. That way you will be able to borrow a little more if you need to for your car loan.
Of course, some of these tips take a bit of time so if you are in a hurry to get a car loan you can just apply for it and hopefully there will be no problems. The lender will check your credit report to make sure there are no problems showing up and in most cases the application will go through smoothly, or might just need an explanation about little things that the lender wants to understand better.
If you’re in a hurry – maybe you’ve just started work and need transport, or your existing car has seen better days! – you can just fill in my Enquiry Form and I’ll get someone to call you who I think is the best match for what you’re looking for. They will get in touch with you and find out the details of what you’re looking for and what your circumstances are and can give you a quote for what loan would be best for you at this time. It can also highlight any areas of your finances that you can improve for any loans you might want in the future such as for a home or a boat.
Let me know below if you have any questions about interest rates for new car loans, or if you’ve had any experiences with personal circumstances affecting the interest rate you could get. Plenty of people have surprising stories of taking crazy loans because they thought all loans were the same…