Does a car loan cover insurance?
Millions of Australians today have cars which they have bought using car loans. There are many different types of car loans, and each of them has different features, rates and terms which suit different people with varying financial situations.
Understanding what your car loan covers is a really important step to take to ensure that you aren’t left with unexpected costs to pay.
If you need advice about what a car loan covers, get car loan advice from Positive Lending Solutions.
Car loans and car insurance
Many people are confused and often ask, "Does a car loan cover insurance?" The simple answer is no.
A car loan is a pre-agreed amount borrowed by you from either a bank or other financial institution.
You will calculate the amount that you need to purchase the vehicle you want (depending on factors such as whether you have any type of down payment to offer) and this may then be approved by your lender and transferred to you to help you make the purchase.
A comprehensive car insurance is essential to have in place if you want to get approved for a car loan. Car loans do not cover the cost of your car insurance. It is an extra cost that you’ll need to consider when budgeting for the purchase of your car.
What does a car loan cover?
A car loan covers the costs of purchasing the vehicle that you want to buy. Generally, you will need to work out exactly how much this amount will be.
If you have a down payment or deposit that you can put towards the price of the car, the amount of the car loan that you need will decrease. This helps reduce your monthly repayments as well as the interest that you’ll be required to pay over the course of the loan.
When thinking about which car loan is best for you, you’ll want to consider some of the factors below:
- Interest rate included with the loan
- Whether the interest rate is variable or fixed
- The size of the loan
- The loan term
- Whether the loan is secured or unsecured
- Loan fees such as early repayment fees
What does a car loan not cover?
When considering the purchase of a vehicle, you’ll need to be prepared to take some time to budget properly. There are lots of associated costs that come with owning a vehicle, and you’ll need to make sure you’re aware of these and that you can always have enough money to pay for them and avoid defaulting on your car loan repayments. If you are not able to pay back your car loan repayments, you could harm your credit rating and it will substantially reduce your chances of borrowing in the future.
Some of the costs (other than car insurance) that a car loan will not cover, include:
- Running costs of the car. Cars are pretty expensive to run at times so you’ll always need to have enough cash saved up to pay for things such as fuel.
- Unexpected repairs. If your car breaks down, you may have to pay for expensive repair work at short notice so always make sure you are financially prepared for this.
- Maintenance costs. Parts of your car such as tyres will need to be replaced from time to time. This is inevitable so always ensure that you’ve got enough money to pay for maintenance costs.
Understanding costs when applying for a car loan
When you come to apply for a car loan, you’ll want to take the time to figure out how much you really need to borrow. At the same time, you’ll want to plan carefully and budget or set aside money for other costs associated with running a car that won’t be covered by your car loan amount.
Do not get a car loan if you aren’t feeling confident about paying back your loan amounts. Always seek expert help to avoid potentially damaging your credit history by defaulting on repayments.
At Positive Lending Solutions we have been helping people find the right car loans for them for decades. Our expert team of brokers are on hand to help direct you to trusted lenders and have access to the latest car loan offers on the market today.
Get expert advice and find a car loan that suits you.