Thinking about car loan options? Read this first

When it comes to buying a car, there’s been almost no better time.

Interest rates are at historic lows and car buying has slumped 6.4 per cent on this time in 2019, according to the Federal Chamber of Automotive Industries.

That means dealers are keen to get people in the door – but if you’re mulling over some of the “amazing” rates, read this before you sign: It could save you a lot of financial pain.

Zero per cent interest rates and ‘ultra-low’ dealer finance – too good to be true?

According to the Banking Royal Commission, about half of us choose a lender before approaching a dealership.

Not getting finance locked in could lead us astray.

Though 0 per cent or 1 per cent finance from dealerships can look good, it is anything but.

These deals usually restrict your ability to negotiate lower prices, add lots more fees to make up for the interest rate, and may slug you with balloon payments to artificially keep regular repayments low.

Buy new over used cars

Used cars are cheaper than new cars on price, but the costs when it comes to financing is higher.

Used cars have low residual value compared with new cars, and lenders are more wary about financing them – passing the risk on to you in the form of higher interest rates.

Look for comparison rates

When you are comparing car loans, look for comparison rates instead of base interest rates.

Comparison rates include most fees and charges associated with the loan expressed as a percentage per year, e.g. 5.5 per cent p.a.

This gives you a better way to compare car loans “apples for apples” instead of guessing at the cost after the fact.

Use a car loan calculator

To make a good comparison, use a car loan calculator. You’ll need a loan term, how much you want to borrow, and your interest rate, preferably a comparison rate.

This way you’ll get a clear estimate of how much you’ll be paying back each month instead of just guessing.

Thinking about paying off your car loan early?

If you’re thinking about paying off your car loan early, check what kind of fees are involved.

In a fixed-rate loan – where you pay an equal repayment each week – it’s difficult to pay off a loan early without incurring fees.

In the rarer variable rate car loans – where the rate varies according to the market – paying off a car loan with lump sums or round-ups is more welcome.

One way to speed up your loan (without fees) is to switch from 12 monthly repayments to 26 fortnightly ones – that means one extra monthly repayment a year.

Approach a broker

A third of car buyers use brokers instead of sifting through dozens, if not hundreds, of different loans on their own.

According to car loan expert and Savvy CEO Bill Tsouvalas, a broker is your best bet at nabbing a great rate.

“Car loan brokers have access to a lending panel, which means they’re doing the heavy lifting looking for rates and loans that suit your needs,” he says.

“It can save you time on looking for loans, filling out paperwork and at the end of the day, it saves you money.”