A Practical Guide to Managing Car Loan Repayments

Before you even apply for a car loan, you need to have a plan in place for how you'll repay the money you borrow.

Few people can afford to purchase an expensive item like a car without taking out a loan, but when it's done right, a car loan can be used to improve your financial and lifestyle situation.

Here's the steps you can take you make your car loan into a positive financial decision.

Managing car loan payments

The first step to taking out a manageable car loan is to work out what type of car loan is right for your situation. You can choose from a range of consumer or commercial loans, depending on your life and financial situation.

Getting the right car loan

There are different types of car loans that are designed for different car buying situations. A car loan broker will be able to guide you to select the right loan.

• Novated lease - for PAYG employees
• Secured car loan - for purchase of car under seven years old
• Unsecured car loan - for older cars
• Chattel mortgage - when a car is used mostly for business
• Low doc car loans - if you don't have payslips.

Before you start to find the right loan, outline how the car will be used, and whether you'll own it personally or it will be owned by a business.

Check your credit file

The next step to making sure you get the lowest possible car loan repayments is to check your credit file. You can get a free credit check through any of the main credit reporting bodies annually, or if you use a car loan broker, they'll perform a 'soft' credit check on your behalf.

If you have any unpaid defaults, be sure to make arrangements for these before applying for your loan. Knowing what your credit rating is will give you an idea of what your car loan repayments will be.

Formalise your budget

Find a figure that you can afford to put towards your car loan payment each pay cycle after your key expenses have been met. It pays to do this, and then come back to it a second time in case you've forgotten anything.

With this figure in mind, you can use a car loan calculator to work out what you can afford to borrow.

Allow some 'wiggle room'

When you're setting up your budget, allow some space for unexpected events that could impact your available income.

It's nice to know that you have some extra money available for medical expenses, repairs or maintenance, or even just to treat yourself occasionally.

Do your research before you apply

Compare some different lender options to ensure that you're getting a good deal. You don't want to pay more than you have to for your car loan, even if you've got a plan in place to pay it back. A car lending specialist can compare lenders and advise you of your different options.

Set up direct debits

Once you've chosen your car loan and had it approved, you can set your direct debits to come out on the day that you get paid. This will mean you won't miss a payment and protects your credit rating for the future.

Making extra payments

If you've planned your car loan carefully, you might be able to save interest by paying it back sooner when you have extra money. Check with your lending specialist which loans allow you to repay your car loan sooner.

Choosing the right car

Getting the right car is just as important as making sure you can afford your car loan. Be clear about what you need the car for, and do some research to find out which models will be right for you.

What if you lose your income?

Nobody wants to think about not being able to work, or losing their job. But if for any reason you don't have ongoing income, you want to have a backup way of making your car loan payments.

You might have income protection insurance in place that will cover you if you are out of work with an injury or illness, or you could take out loan termination insurance which can cover the balance of your car loan when you can't meet repayments.

You can get a car loan quote and ask any questions you have about how to manage your car loan payments in the context of your personal financial situation from a car lending specialist.