Questions to ask before getting a car loan
Buying a new or used vehicle is a big decision that requires a lot of planning, and the same can be said of getting a car loan to pay for it. The following questions will help guide you before you sign on the dotted line.
What can I afford?
Probably the most important step is to look at your income and expenses to decide first if you can afford a car loan at all. When you take out the car loan, you should calculate how much the total repayments will be, including interest. You don’t want to get in a sticky situation a bit later on if you can’t make repayments.
Fixed or variable rate of interest?
On the whole, a fixed rate of interest is the way to go. It gives you the same rate of interest throughout the loan term, so you can therefore see exactly how much you’ll pay back. A loan calculator can help you figure this out too, and you can budget more effectively.
What if I can’t pay it back?
Sometimes unexpected things happen and you might not be able to make repayments which is where Loan Cover Insurance can be useful. If you are experiencing financial hardship make sure you contact your bank or finance provider and have an honest conversation with them about your circumstances. After all, they are there to help.
How do I find the best rate?
These days, it’s easy to compare interest rates for various loans online with numerous comparison sites. You should be aware that these don’t always cover every loan available as they can be sites who have opted into this service, so check more than one website. If you already have a transaction account with a bank then you can get discounted rates or offset accounts for your car loan that can save you money.
How do I get a loan approved?
First of all, you need a good credit history. This means you need to have no defaults on your credit file in the past five to seven years, depending on how serious the default is. However, you also need to be able to show that you have the income to make the loan repayments and that you can cover your living costs without creating a financial burden.
What extra costs do I need to consider?
Sometimes loans come with extra fees or charges so it is worth checking the small print for these beforehand. There are also insurance costs, other costs, such as registration, stamp duty and dealer delivery costs, and ongoing costs of owning and maintaining the car to consider before calculating the total cost. Getting a Car Budget Account linked to your loan can make things easier.
How long will I be paying it back?
Depending on your financial situation, you may not want to be committed to paying a loan back for a long period of time. Alternatively, you may be happy to be in it for the long run. Some lenders can offer longer loan periods, giving you lower repayments and hopefully greater peace of mind. If you want to, you can also repay it in full earlier, although this could incur a fee, which you would need to be aware of.
Asking these questions before you start on your car loan journey can help you be prepared from the get-go. Being prepared is the first step to getting the car you’ve been dreaming of.