6 Traps To Look Out For When Getting A Car Loan
Getting a car loan is usually an essential part of buying your next car, but it doesn't have to be a risky decision. When you have the right information, you can take out a car loan with confidence.
6 Car Loan Traps To Avoid
Here's 6 things you need to avoid when you take out your next car loan:
1. Buying the car before arranging finance
You should get a pre-approval in place before you sign a contract to purchase or leave a large deposit on a car.
Start by using a car loan calculator to find out what you can afford to borrow on your current income, and check your credit rating to see where you stand. With this information, you're in a better position to choose a car that's within your budget.
Getting a car finance pre-approval can give you even more certainty, as well as giving you the advantage of a faster purchase once you find the right car.
2. Getting locked into a bad deal
When buying a car you focus on negotiating the lowest price you can get. Don't waste all this effort by agreeing to a car loan that's not the best possible deal.
You should put as much research into your car loan as you for the car you buy. Okay, it's not as much fun, but it will save you a lot, which leaves more money for fun stuff like a road trip with your new car.
So where should you start? Using loan comparison websites can give you an idea about which lenders are offering which rates. They won't usually be able to give you a specific quote based on your personal financial situation though.
For personalised car finance advice, you'll need to go to a lending specialist. Here you can access expert advice on the different lenders that offer car loans, and be matched with some options tailored to your situation. This will prevent regret later on when you realise there's a better car loan out there.
If you do get locked into a bad deal, don't panic. You can always refinance to a better car loan after the first twelve months.
3. Ignoring the balloon payment cost
A balloon or residual value payment is a lump sum that's due at the end of your car loan term. You will pay interest on this amount during the loan term, so remember that you need to factor this into the final amount that will fall due.
A balloon payment will lower your car loan payments but think twice before adding one to your car loan because you will be paying for the privilege in the end.
4. Read your loan contract
Before you sign the contract, make sure that you understand what you are signing up for. There are some red flags that you can look for, including:
- No repayments period
- 0% or very low interest offers
- Co-signing a car loan
Make sure that you understand who has responsibility for the car loan and what you are required to do. A low interest or zero interest period may revert to very high interest for the remainder of the loan term.
If you're not required to make repayments for a period of time, find out if you are paying interest on the loan amount during this time. You should also find out what happens if you need to terminate the loan early - are there early payout fees? Will you be paying regular account keeping fee with your car loan repayment?
If there's anything you aren't happy with or don't understand, don't be afraid to ask before signing.
5. Check your insurance
Most car loans require that you have comprehensive car insurance in place. Some loans might also come with other insurances that you may not need. Check this before you sign the loan contract so that you don't pay extra for features you don't really need.
6. Keep your loan term short
When you take out a shorter loan, you'll pay less interest, which means that the car loan will cost you less in total. You can't go wrong, as long as you can afford the repayments.
With an understanding of what you need to watch out for when you take out your car loan, you can move forward with confidence that you won't be stuck with a less than ideal finance contract.
If you're ready to find some of your car loan options, get a quick quote and some advice from an experienced lending manager on the best way to move forward.