When you decide to buy a car, no matter if new or used, most probably you will need finance. As not many people have saved enough money to pay for it, loans are very popular in Australia. But what do they involve?
You can borrow money for your car in the form of a car loan or a personal loan. You should know that you are not limited to a car loan, even though the name might suggest this. However, both types of finance have their own characteristics, and knowing them will help you decide which one is suitable for you.
First and foremost, you should pay attention to interest rates. Even though this cost may be the most visible one, you should do thorough research before deciding which one to choose. Interest rate do vary considerably and can range anywhere in between 5-15% and they ultimately have a bearing on the final price.
Early exit fee
Besides interest rates, you should also take into consideration other costs, such as those for exiting from your loan earlier than stipulated in the contract. Refinancing is a new trend in Australia, and many people decide at some point that they can get a much better deal on their car loan than they originally received. What to do then? The answer is: search for another deal. Of course, if you do a quick research on the Internet regarding interest rates and loan flexibility after a year or two, most probably you will find loans which are much convenient than yours. But calculating the costs of your early exit from the current loan may discourage you. In the end, you may find that refinancing does not make sense because of the early discharge cost. If you want to avoid such a situation, you should take into consideration the early exit fees from the beginning.
If you want to pay off your loan early, most probably you will also have to pay a prepayment penalty. This extra charge for you is required by a lender because they need to compensate for all the administrative costs, as well as for the interest that they no longer get from you. Some lenders charge whilst others do not, if pre-paying your loan before end of term is likely than opt for a product that does not charge for extra payments.
Even though it may seem insignificant, application fees may cost you a lot. Application fees vary from lender to lender so do your research.
When choosing a car or personal loan, make sure you read all the papers before signing. Consider all the costs written there, and do the math. There are plenty of additional charges a lender can ask, but most borrowers simply ignore them. Moreover, repayment options have to be tailored to your needs, as this aspect will directly affect you.