Loan to buy a car: Are You Better Off ?

By- Bhawani Poudel,
Lending manager at ABK mortgage and finance

A car loan is a specific type of personal loan provided to you by a financial institution or arranged by a car dealer to buy a new or used car. The first two important questions you should ask yourself are:
i) What is your budget?
ii) Whether you want to buy a new (brand) car or used car.

Due diligence
Before you buy, you must do some important pre-purchase checks:
• PPSR search (If you are purchasing from private seller) ;
• Road and Maritime Services Checks;
• Vehicle inspection and test drive;
• Description of vehicle matches with its paper;
• Warranties – Statutory or standard or extended;
• Term of the loan as per your payment capacity.
Credit rating ?

To obtain loan from any financial institution in Australia, you require to have a good credit history. The purpose of looking at your credit history is to assess your financial capacity as per the selected payment plan. You can obtain a copy of your credit rating from VEDA.

Further documents required with your application:
With your loan application you require- Proof of a good credit history, proof of your regular income, current bank statements and personal identification

Approaching for loan:
It can be very confusing when everyone is offering something similar yet different. You have to research and shop around to get the best credit deal. This is equally important as getting the best price on the car.
You also need to pay interest on the loan amount provided by the financial institutions. Generally, interest amount is calculated according to either fixed rate or variable rate.

A fixed rate loan arrangement is an arrangement where the interest rate is locked for the term of the loan thus you know exactly how much you have to repay each month whereas variable rate arrangement changes your interest rate payable according to the economy change of the country and decided by the banking industry time to time.

When you see a dealer with intention to buy a car, a car dealer may arrange financing for you. This might be very convenient for you as you do get complete service under a same roof. However, it might be costlier option (higher rates and less flexible) for you compared to regular car loans offered by banks.
It is strongly recommended that you conduct proper market research when accepting the car loan as once processed there might contractual obligation which will bind you for the term of the loan.

Things to watch out for – Car Loan
Initial cost
A financial institution may charge you an establishment fee or loan application fee to cover the cost of setting up the loan (Compare this rate with different financers and dealers).
Monthly fees
The majority of loans will incur a monthly fee to cover the account keeping costs which can vary depending on the nature of the financial institution. Although this cost seems to be a small amount payable (normally between $5 – 10 per month) but can really add up over the term of the loan.
Early repayments
The nature of your loan agreement might attract you an early repayment fee if you have some disposal money and you want to reduce the loan amount for your car loan.

Exit fee
Exit fee, also known as early termination fee, means a fee charged by your financial institution when you pay off the loan early.

(The writer is the lending manager at ABK Mortgage and Finance)

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