9 Things To Consider Before Getting A Car Loan

Many Australians consider a car loan as an essential path to buying the car that they need. In fact, 69 per cent, or over 6.5 million, of Australia's working population drive to work each day according to the 2016 Australian Census, and a further 5 per cent travel as passengers.

Being so highly dependant on our vehicles and car loans, it could be easy to sign a loan in a hurry as a necessity and fail to read the fine print. Before you take out a car loan contract, it's essential that you understand what you are agreeing too, and takes steps to maximise the benefit of your essential car loan.

Getting a car loan? Consider this first.

Here's some things to consider before you choose a car loan:

1. Your contribution

Dealers will often let you borrow money without putting a deposit towards your car. This sounds pretty attractive, but it might not be in your best interests.

Cars are a depreciating asset, so if you don't put a deposit down it might not be too long before you owe more on your car loan than your car is worth.

2. Length of your loan term

You can usually get a loan term of up to seven years, but do you really want to be making payments on your car loan for this long?

A longer loan term will give you lower repayments, but you will pay more interest over that time to borrow the money. It might be wiser to take out a shorter loan term and a smaller loan amount, so you don't have the debt hanging over your head after a few years when you're ready to do new things with your life.

3. Dealer vs direct financing vs broker finance

There are three ways you can take out your car loan. You might decide to get your loan at the dealership, using their financier or manufacturer finance; directly from a lender, or through a car loan broker.

We recommend arranging your finance separately for your car purchase, no matter which option you choose. It pays to get a loan pre-approved through a lender or car finance broker so you can compare the terms and conditions that are offered at the dealership.

While dealers often receive markups for the finance they provide, a car loan broker can offer you loans that aren't available through retail, from a range of lenders. This competition between lenders allows car loan brokers to offer products that have better overall terms.

4. Interest rates

The interest rates on car loans can vary depending on the climate of the market. Sometimes a non-bank lender will undercut offers made by the banks. However a low interest rate isn't the only thing you need to look for. You also need to consider the fees attached to the loan, so the best way to compare offers is to look at the comparison rate, which includes these fees.

5. Cost of deferred payments

Sometimes a dealership will offer 'no repayments for 6 months'. Check the fine print if you get an offer like this because you might accrue interest on the loan during this time.

Zero per cent finance is another one to look out for - make sure you know what the interest rate will be once the promotional period ends.

6. Loan fees and early payment

If your needs change before the loan term ends, you might need to sell your car to get something else. In this case, you'd need to pay out your car loan early. Check what the fees will be if you find yourself in this scenario.

7. Vehicle price vs loan terms

Always negotiate the price of your car separately to the terms of your car loan contract. This way you can ensure that you get the best possible price on the car first, as well as the best possible car loan. You'll be able to see the true costs of the car loan that you take out.

8. Bank vs non-bank lenders

You can choose to take out your car loan with a bank or a non-bank lender. It's worthwhile finding out what types of car loans you can get through a non-bank lender. With lower overheads than branch-based banks and alternative assessment criteria, depending on your exact situation, you may be eligible for a better offer than you will find with your bank.

9. Insurance

You'll need comprehensive car insurance when you take out a secure car loan, as a condition of the final car loan settlement. Compare different providers for the types of car you're interested in before you buy your car so you can get a great deal.

You may also consider loan termination insurance if you aren't sure if you have income protection insurance, or if your income protection might not be enough to cover the car loan payments. Loan termination insurance covers the balance of your car loan if you can't afford to pay it.

Choosing your next car is a lot more exciting than choosing your car loan, but because its a decision that you have to live with for a few years, you want to make it the right decision.

If you'd like to find out more about how to choose the right car loan, you can get advice from a lending specialist about your car loan options, and a pre-approval you can take with you to negotiate at the dealership.