3 tips to consider when looking for a car loan
Estimated read time: 2 Minutes
There’s no denying it – cars can be expensive. So many people choose to apply for a loan to finance their purchase, rather than buying with a lump-sum cash payment.
We’ve pulled together some tips that could help assist with the application process, and help you find the right loan for your individual circumstances.
1. Decide how long you want your loan term to be
Before applying for a car loan, it could be a good idea to think about how the car loan repayments could affect your personal finances over time, and whether repaying the loan could become a burden.
Consider your other outgoing expenses, such as insurance or other loans you’re paying off, before working out a repayment amount you can afford. This can help you narrow down the ideal borrowing length (or term).
As a rule of thumb, the longer the term, the lower the repayments. But bear in mind that a longer loan term does typically mean that you'll pay more interest in the long run.
2. Understand insurance options and the costs involved
Insurance is an option to help to provide peace of mind for anyone taking out a loan. But understanding how much to set aside for insurance payments could affect how much you end up borrowing. When looking to buy a car, you’ll need to get the right insurance to cover your individual needs. Here are some of the options available to you:
- Comprehensive car insurance. This’ll cover the replacement cost of a vehicle if it’s stolen or written off, or if you crash or damage it. You may also be given the option to insure your vehicle for its market value or another nominated amount.
- GAP insurance. This is the difference between an insurance payout of a vehicle and the balance still owed on the financing. For example, if you’re financing a car, then GAP insurance could save you thousands of dollars if your car is written off and you still owe money on it.
- Consumer credit insurance, or CCI. This protects you if you’re suddenly unable to make loan repayments, such as in the case of unemployment, illness, injury due to an accident.
All new cars come with a manufacturer’s warranty that guarantees that mechanical faults to your car occurring within a certain period will be repaired. However, once the manufacturer’s warranty period is over, you’ll be responsible for paying for any repairs. Purchasing an extended warranty allows you to extend the coverage on your original manufacturer's warranty.
3. Get different quotes before deciding
You have several options when looking to finance a vehicle. You could go to your dealer, enquire at your bank or search for lenders online. Make sure you do the research to see which option suits you best. By taking the time to evaluate a few car loan quotes, you could save enough money to spend on upgrades or accessories for your new ride.
But don’t lodge multiple loan applications.
It’s important to do your research before applying for a car loan rather than applying with multiple lenders. This is because every time you submit an application to a lender, it may result in a credit enquiry on your credit file. Multiple enquiries in a short period of time can negatively impact your credit score – which may result in lenders perceiving you as a higher risk.
We’re here to help
Buying a car can be exciting, so if you do your homework, understand your options and are comfortable with the loan you’re taking, you'll be in the best position to enjoy the experience.
To get you started, find out your individual car loan rate and repayments before applying, without affecting your credit score. Alternatively, call us on 137 377.
Contributor | Andrew Gamble, Head of Sales - Asset Finance
Andrew brings more than 20 years of experience in the finance industry. His strategic vision, leadership and his customer centric approach has contributed to the significant growth of Pepper Money's Asset Finance business. Read more.
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