Choosing a loan for your first car
A new car will set you back a sizeable amount of money and paying for such a large expense can be daunting. What should you be considering when buying your first car?
There are many effective ways of budgeting for a big expense, such as a new car, but saving the cash to buy it outright could take years. There are finance options available to help you get the car of your dreams sooner rather than later. These include:
• Car loan (bank or other lender).
• Hire purchase.
• Finance lease.
• Novated lease.
Which one should you choose?
With hire purchase and finance lease the financier buys the car and then hires or leases it out to you. With a novated lease, you agree to deduct a certain amount from your wages each month, which then goes toward leasing the car from the financier.
While these can be good options for new buyers, a typical car loan from an accredited lender, such as a bank, is often best if you’re looking for simplicity, and if you want to own your car there and then.
Steps to take before getting a car loan
Before applying for a car loan, you need to make sure that you are financially fit to boost your chances of being approved.
Aside from a good credit history, to get approved you need to:
• Have the income to afford repayments: a lender won’t approve a loan if you can’t display sufficient funds.
• Consider other expenses: if you’ve got lots of outgoings, you may be seen as over stretching your budget, and be turned down.
Otherwise, if you are concerned about being rejected, you could:
• Use a large lump sum as down payment: this can help reduce the cost of the loan repayments.
• Use someone as a guarantor: if your lender considers you high risk, then someone else can guarantee your debt in the event that you can’t pay it back.
When considering how much you can afford, you also need to factor in running costs, such as vehicle maintenance and repairs, as well as insurance.
I can afford it – what next?
The next thing to do is research what rates are on offer. You can do this easily by using a price comparison site, such as Canstar. Getting the lowest interest rate is important, but it’s vital to check the fine print because you don’t want to be caught out down the line with hidden costs.
Once you have the loan it might be a good idea to set up a Car Budget Account. This transaction account lets you manage your everyday finances, but also offsets up to $2,500 of the balance of your car loan, saving you money and helping you pay off your loan faster.
Finally, once you’ve decided you can afford a loan and have found one that suits you, it’s time to think about comprehensive insurance for your car , so you can drive around safe in the knowledge that your car is protected. Comprehensive insurance is a requirement for all car loans so shop around for the best deal. Remember, you can’t always rely on everybody else to drive safely.
Excited about getting your first car? Find out more about the car loans available from Beyond Bank.