Car Loan

About Car Loans

A car is the most convenient commuting option available to the common man but it can be a little heavy on the pockets. Hence, the need for car finance arises. A car loan is referred to an amount of money borrowed as a personal loan to purchase a used or a new car. The lender and the borrower come into a contract at an agreed interest rate and repayment tenure. This tenure can range from one year to seven years. Car loans are of two types - unsecured and secured car loans. As the name suggests, a secured car loan requires collateral as opposed to an unsecured car loan.

Fasten your seatbelts and get ready to drive a car with this guide on car loans.

Eligibility Criteria for Car Loans

There are certain prerequisites that a borrower must fulfil to be considered for car loans. According to the legislation, lenders must guarantee that any loan product they approve won't put the borrower in danger or suffer from financial instability. The eligibility criteria for car loans are as follows:

• The applicant must be an Australian citizen
• The minimum age requirement is 18 years
• A source of income must be presented
• The applicant must have a good credit score

It must be noted that the eligibility requirements for car loans can change depending on the loan package and the state or territory. Applying for unsecured car finance as opposed to a secured car loan, for instance, will have stricter credit score requirements.

Interest Rate Car Loans

Car loan rates are rising just like home loan rates but at a more steady rhythm. A buyer can opt for a new car, a green car, a used car or an electric one. There are various discounted rates available on the latter. You must compare the car loan rates provided by different lenders before choosing one. The interest rate on secured car loans starts from 5.69% p.a.

Things to Know about Car Loans

A borrower must know the following things before raising a car loan.

Interest Rate

Since interest is a car loan's major expense, it should be the first thing a borrower must consider when applying for one. The interest rate will be calculated annually on the outstanding loan balance and expressed as a percentage. One should always be aware of the car loan rates before borrowing money to buy a car and compare the rates given by other lenders.

Loan Period

The loan term might range from three years to five years in length. In essence, a longer term indicates that you will pay off the loan over a longer period of time but with lesser monthly payments. However, the overall interest cost will be higher.

Car Loan Repayment

Most car loans are repaid monthly, but you can ask your lender if weekly or biweekly payments are an option if it better fits your financial situation. You can pay off the debt much more quickly and for less money if you make smaller payments more frequently.

Fees and Charges

Other costs that you can incur could drastically increase the loan amount. These fees include the break fee, discharge fee, ongoing fees, up-front/establishment fees, and late payment fees.

Balloon Payment

Many people who take out vehicle loans choose to include a balloon payment in their loans. An agreed-upon lump sum given to the lender after the loan term is known as a balloon payment.

A balloon is an option for borrowers who want smaller, more frequent payments, but their overall interest charges will be higher over the course of the loan.

You must find a lender for a car loan, and many of the aforementioned considerations will affect your decision.

Documents Required for Car Loans

The following documents are required for car loans. The documents may vary as per lender and the State or territory.

• Identity Proof
• Residency Proof
• Income Proof
• Information about the car
• Proof of assets and liabilities

What are the Benefits of Car Loans

The following are the benefits of the best car loans. 

• You don't need to offer any collateral when applying for a car loan because the car itself will be used as security. The vehicle will be hypothecated to the bank, and in the event of a payment default, the lender will have the right to confiscate the vehicle, sell it at auction, and recoup the unpaid loan balance.
• Your credit score will rise if you take out a car loan and make your payments on time. Because lenders know you can pay them back, they will be more likely to offer you favourable terms, such as lower interest rates or the elimination of processing costs.
• You can better organise your money when you pay off your car loan because you will know how much you will be contributing each month. Then you can make the necessary adjustments to your other costs.
• Many lenders now provide additional benefits with car loans, such as free servicing and road tax. Even while these extra benefits might not be the strongest justification for obtaining a car loan.

How do Car Loans Affect Your Finances?

Car loans affect a borrower’s credit score, not to mention the debt they land themselves in. The lender with whom the borrower has applied will do a credit check on them each time they submit an application for a car loan. Each time a lender does this, it records a "hard inquiry" on their credit report, potentially lowering their credit score.

Having this impact on the credit score is unavoidable; thus, it's neither good nor bad – it's required. Multiple credit applications made in a short period of time, however, will lower the credit score. This is because it may indicate to lenders that a borrower is in financial trouble.

Making all of the monthly payments on time makes it appear on the borrower’s report, which can help their credit score and have a positive effect.

Why is Car Loan Comparison Important?

A car loan is a weighted decision on the borrower’s pocket. There are many lenders in Australia that claim to offer the best car loans. Hence, the need for car loan comparison arises.  

Gain Insight into Car Loan Rates

The financial sector is incredibly cutthroat. Numerous lenders provide reasonable interest rates and little to no related loan fees in an effort to draw in new clients and keep existing ones. You risk missing out on the greatest bargain if you don't take enough time to contact several lenders about available financing options and compare the predicted total cost of each loan arrangement.

The Accompanying Costs

If you don't factor in the various associated fees, some lenders charge hidden fees for loan offers that are discounted; these offers appear to be fantastic deals otherwise. Precomputed interest, cost of ownership, document fees, origination fees, prepayment penalties, refinancing and exit fees are just a few of the hidden loan costs that can be expensive to pay and have a big impact on the overall cost of the loan.

You can estimate the loan's actual cost more accurately by being aware of the accompanying costs. This will make it easier for you to compare offers and find the real financing option that offers the best deal.

Get Better Deal

In order to entice you to pick them over their rivals, lenders may offer cheap car loans at lower rates if they learn that you have been looking around for loan offers from their rivals. To entice you to sign up as a customer, certain businesses may even offer benefits like no down payment and yearly fees.

If you have a decent credit score and a steady source of income, you are in a better position to bargain for better terms due to the competition among lenders. A bad credit car finance may not be up to your standards.

Dance With Lenders

You can compare loans to find ones that may be better for your demands and financial situation than the ones you had planned to get through loan shopping.

Compare Car Loans in Australia

Urban Money allows you to quickly and easily compare a variety of car loans, including attributes like interest rates, comparison rates, fees, and loan periods. You can quickly browse between various product features using convenient filters to locate a car finance solution that works for you. A comparison has been provided in the tables below between a few lenders providing car loans for a new and a used car at a fixed interest rate.

New Cars

Lender	Comparison Rate	Loan Term (in Years)
Moneyplace	7.31% - 10.36% p.a.	3 - 7
Driva	4.84% - 26.64% p.a.	1 - 7
Heritage Bank	6.87% - 23.84% p.a.	1 - 7
Our Money Market	6.20% p.a.	1 - 5
Loans.com.au	6.94% p.a.	3 - 5
Bank of Us	6.27% p.a.	6 - 84 months
NOW Finance	6.50% to 18.95% p.a.	18 - 84 months

 

Note: The table above provides information as on November 2022.

Used Cars

Lender	Comparison Rate	Loan Term (in Years)
Moneyplace	7.46% - 11% p.a.	3 - 7
Driva	4.84% - 26.64% p.a.	1 - 7
Heritage Bank	6.03% p.a.	1 - 7
Gateway Bank	6.20% p.a.	1 - 5
Loans.com.au	6.94% p.a.	3 - 5
Westpac	7.20% - 12.16% p.a.	1 - 7
NOW Finance	6.50% to 18.95% p.a.	18 - 84 months
Our Money Market	6.87% - 23.84% p.a.	1 - 7

 

Note: The table above provides information as on November 2022.

How to Apply for Car Loans

When it comes to car finance, there are three primary possibilities. They are explained below.

Car Dealer

To begin with, you might obtain a car loan from a car dealer. Dealer borrowing can be easy and simple, but their car finance rates are sometimes higher. The total cost of the loan may rise dramatically as a result of this.

Bank

A borrower may visit a bank to seek the best car loans. However, the stringent prerequisites might act as an obstacle. For example, a borrower with bad credit may receive a lesser amount of car loan. 

Lender

Finally, you can use an internet lender to apply for low car loan rates. Prior to visiting the car dealer, acquire pre-approval from the lender in order to take advantage of the best car loan rates. This gives you the power to fend off any dealer push to use their financing. Make sure you have looked around for the greatest price, regardless of the choice you select. Nowadays, non-bank lenders frequently offer the best rates, so you don't want to choose dealer finance and wind up spending too much for the best car loans.

As you won't be dependent on them for your financing and won't have to disclose your borrowing capacity, the dealer won't have as much leverage to demand a higher price for the car.