How Does Car Finance Work?
Car Loans Explained
Buying a car is a pretty big commitment. If you decide to borrow to purchase your car, you want to know exactly what you're getting into. That's why we've broken down the car loan application process here.
From comparing online quotes for car finance to the end of your car loan term, read on below to find all the information you need.
What is car finance?
Car finance is a personal loan specifically for the purpose of purchasing a car. A contract is created between you and the lender that you will repay the loan amount according to a set payment schedule, along with interest.
The benefit of taking out a car loan is that instead of paying for your car in a single lump sum payment, your payments will be spread over the loan term.
What is the cost of car finance?
To borrow the money to buy your car over a set loan term, you will pay 'interest' which covers the cost of borrowing the car purchase price.
Ideally, you want to pay as little as possible to borrow the money you need to purchase a car. This is where a car loan broker comes in. Using a car loan broker, you can compare different car loan options from a wide range of different lenders.
Find out more about the benefits of using a car loan broker here: Top Ten Reasons to Use a Car Finance Broker.
How do I find the right car finance?
To find the right car loan, you can follow our comprehensive 23 Step Process. The right car finance is a car loan with a repayment schedule that you can meet on time through to the end of the loan term.
To select the best fit for your personal car loan, you'll want to negotiate the best possible car finance deal for your current situation.
Start by choosing the car you want to buy, or getting an idea of how much you want to spend. You'll also need to decide if you are going to buy a new car or a second-hand car.
Then it's time to compare car loan quotes based on the type of car that you want to buy. Things that you need to consider and compare when choosing your car loan include:
- Application fee
- Interest rate
- Any early payout fees
- Loan term
The 'costs of borrowing' are generally included in your monthly repayments. The best car loan is the one where the cost of borrowing is as low as possible. If you can avoid an application fee and get a low car loan interest rate, your car loan will cost you less.
How do I apply for a car loan?
You can apply for personal car finance online, you just need a smartphone. You can also choose to call or email to arrange your car loan application. Your car lending manager will answer any questions you have about the process or specific car loan options that you are considering.
Once you have your personal car loan quote and you are ready to proceed, your lending manager will take you step by step through the documentation (link to car loan requirements) that you need to provide for the specific lender you have selected.
Once the paperwork is all ready, your lending manager will prepare your application and submit it to the lender for approval. Once you have a pre-approval, you can find the car you want to buy with confidence, from a car dealer or a private sale.
Buying the car using my car finance
Now you have a promise from the bank that they will lend you the funds to buy your car, you can find the car. If you are buying second hand, the car will need to be less than seven years old if the loan is secured to the vehicle.
When you've found the car, your car loan contract can be emailed straight to you. You will need to have comprehensive car insurance in place too. Once your insurance policy is in place and your lending manager has the tax invoice for your car, your loan will be sent for the final settlement with the lender.
Settlement can be on the same day or the next day. The funds are sent to you or the seller, and you can pick up your new car.
Can I get car finance?
If you are considering car finance as an option for buying your next car, then the best thing to do is to get a quick quote and an obligation free car finance assessment so you know your options.