When you’re buying a new car, most people don’t have enough money saved up to make an outright purchase, or they’d prefer to keep that money in the bank for other purposes.
This means it usually makes sense to take out a car loan. Depending on what you plan to use the car for, you have range of loan type options.
For personal use, you can consider:
If you use the car at least 50% for business, then you’ll want to get:
Car loans for business allow you to take advantage of the tax breaks you can get like GST, depreciation, and other small enterprise tax cuts offered by the government from time to time.
Once you’ve decided on the best loan type for your situation, you’ll want to find out how much you’ll need to set aside from your budget each month.
This is when you’ll need to use a car loan repayment calculator. Using this calculator, you can work out your repayments based on the loan amount, type of loan, and whether you’re purchasing a new or used vehicle.
For a step by step process on how to effectively use a car loan calculator, you can read more here: How To Use A Car Loan Calculator
Most car loan payments are scheduled monthly, just like home loan payments. However, most lenders will allow you to make payments that fit with your pay cycle. If you use a car loan broker to arrange your loan, be sure to talk to them about organising this option for you.
If you have a novated lease, your employer will make the car loan payments on your behalf, before you are paid. Once the novated lease contract is in place there’s nothing more for you to worry about.
With a chattel mortgage, you can have the loan structured to suit your business, with payment breaks when major servicing, car registration and insurance are due. If you work in an industry with irregular cash-flow, then your chattel mortgage payments can be arranged to fall due when your income comes in.
Your car loan broker will get in depth information about your financial situation and make arrangements with the lender to suit your situation.
Remember, by making more frequent repayments, you’ll reduce the capital owing on the loan more quickly, and pay a bit less interest over the life of the loan.
Most car loans come with a fixed loan term and a fixed total cost. Some lenders may offer the ability to make extra repayments when you have the extra cash, but there can be a fee to do this, so usually you’re better off to stash the cash into your savings account.
Car loans, especially chattel mortgage or novated lease car loans, will often have what’s called a residual or balloon payment due at the end of the loan. If you can save up this amount during the loan it’s probably the best use of your spare cash.
Remember you’ll also have to pay registration, insurance and repairs, so tucking away extra money for big expenses is a smart habit to get into.
When you decide on your loan term, you’ll have to consider a number of things that affect your finances as well as your lifestyle and future goals.
The big one to consider is your monthly repayments - you want to be certain you can meet the amount comfortably and still have money left over for those unexpected expenses that can crop up. Meeting your monthly payments on time is crucial to maintaining a healthy credit score.
Some other things to consider are how soon you want to be free of the loan so you can put your money towards other things - maybe you’re saving for a house or for an overseas trip.
When you repay your loan on time, you make yourself attractive to lenders, and you reduce your debt to income ratio in preparation for the next big financial decision. The faster you become debt free, the sooner you can use that extra income for further wealth building and a healthier financial future.
Try our Car Loan Repayment Calculator to find out what you can afford, and how soon you can own the car you want for your business or lifestyle.
If you're looking for an exact quote based on your finances and credit history, give one of our friendly car loan brokers a call on 1300 722 210. They'll be able to match you with the best lender and loan product using their expertise, and save you the time you could spend researching.