Guide to Finding the Best Car Finance Deals
Buying a car is a life milestone. As an expensive purchase, however, you may not be able to afford it with your available cash. Saving for a car can also take a long time. If you need a vehicle now, your best bet is to get a car loan.
Follow these tips to get the best auto loan deals:
1. Know your credit rating.
Check your credit scores from the national credit reporting bureaus before shopping for car loans. This will give you an idea of where you stand in the application process and helps you negotiate for better loan terms.
In Australia, there are four major credit reporting agencies that operate: Experian, Equifax, Illion and Tasmanian Collection Service. You can request a free copy of your credit reports from these agencies to verify the information submitted by your past creditors.
Dispute any incorrect information that has negatively affected your credit score. If you have low credit score, identify which factors contributed to it and take action. Do you have an existing debt or a delinquent balance? Settle it first before applying for a new loan. This will not only boost your credit score but it will also increase your chances of getting loans with competitive interest rates.
2. Identify which car finance deal is ideal for you.
There are many car financing deals to choose from. Knowing which one suits your needs and payment capacity best will help you save time and money in the process.
Types of Car Finance
- Personal Loan - You’ll borrow a fixed amount of money then repay the amount through monthly repayments.
- Chattel Mortgage - Designed specifically for commercial car purchases, you would need to use the car for business purposes more than 50% of the time to qualify for this loan. Your lender will give you the money to buy the vehicle but places a mortgage on it.
- Novated Lease - Designed for tenured employees, this loan is used with salary packaging. Your employer pays for your car lease and its running costs from your pre-tax and post-tax salary deductions.
- Bad Credit Car Loan - Also called subprime auto loan, it’s ideal if you have a low credit score and may not qualify for traditional car loans. Your car serves as collateral for the loan and you have to pay a larger down payment and higher interest rate than prime loans.
- Operating Lease - The lender buys and retains ownership of the vehicle that is rented to you. You won’t have any car maintenance fees to pay. At the end of the term, you can choose to continue renting the car, buy it for its residual value or change to another (usually newer) car.
- Finance Lease - This works like an operating lease, except that you are financially responsible for the car’s maintenance and trade-in residual risk. At the end of the term, you can choose to extend your lease, trade up after paying the residual payment or purchase the car at its residual value.
3. Begin the loan and car shopping.
Do the loan and car shopping separately. Generally, it’s best to inquire and get loan pre-approvals first before shopping for cars. However, you should have an estimate of your car’s price. Lenders need to know what car you are buying so they can compute the loan terms and interest rate based on the car’s price, among other factors.
Get a loan pre-approval from several lenders, but limit your loan shopping to only two weeks. Your credit reports are checked by lenders every time you inquire for a loan, regardless if you’re approved or denied. The credit bureaus then record these instances of access to your credit reports and place them on your report. Applying for new credit is considered a “hard inquiry” and may negatively affect your credit score. However, if you make all of your applications within a two-week period, they count as only one inquiry.
When shopping for car loans, let lenders know that you’re shopping around or you already have another offer. They are more likely to give you a better rate.
Also, be prepared to provide your financial information during the pre-approval process. Some lenders may require proof of your current source of income at this stage.
Take the time to look for the best car available and don't be afraid to negotiate a lower price. You are more likely to get a better price if you can secure your own financing rather than relying on dealer financing.
What car the dealership says you can afford is different from the car that you should spend on, based on your payment capacity and financial position.
To have an idea of how much you can afford for car finance based on your financial capacity, use a car loan calculator.
4. Investigate your lenders.
As lenders check your credit reports, you can also research their business. This will give you an idea of the companies you’re dealing with. Learn what other borrowers are saying about them on Trustpilot and other online review websites. You can check their records at the Better Business Bureau, state attorney general’s office, the office of consumer affairs, and other government agencies that regulate lenders.
Take all reviews with a grain of salt, but be wary of lending companies that have a lot of negative feedback. There’s a big possibility that they are troublesome to deal with.
5. Apply and prepare the necessary documents.
After comparing offers and deciding which car loan you’ll go with, prepare all the necessary documents to prove your identity and income. Also, take the time to review the paperwork before signing anything. Know exactly what you’re getting yourself into before binding yourself to a contract that will last for several years.
Lenders that offer car loans accept both walk-in and online applications. However, many lending companies now provide convenience to borrowers by taking the entire loan application process online, like Positive Lending Solutions. You just need to scan or take photos of your documents and upload them on their website.
If your car loan is approved, you will be required to sign a contract, submit any other additional requirements, then pay the down payment and other related fees. You also need to get a comprehensive car insurance policy, especially if you have a secured car loan.
Once you’ve completed the post-approval steps, you can finally drive your new car home.
Do you need a car loan right now? Call 1300 722 210 to talk to one of our car loan specialists or fill out the Quick Quote form. We’ll get back to you ASAP to answer all your inquiries and help process your application.