How to apply for a car loan?
Getting a car loan is a financial process you enter with a bank, lender, or broker to purchase a vehicle. To begin applying for a car loan you’ll need 100 points of ID such as a Drivers Licence, Passport, Birth certificate, or Medicare card. You’ll also have to prove income and employment with payslips, tax returns and your employer’s contact details.
The best practice is being upfront with your property ownership details, ongoing expenses, and debts or other loans. You’ll also need to provide information on the car’s make, model, colour, and Vehicle Identification Number (VIN), registration details, and purchase price before a lender or broker will approve your car loan. Unsure about applying for a car loan? Talk to the team at Savvy for expert advice and help.
What car can I afford?
Buying a car is a major asset and the best approach is to fit your car around your lifestyle, not the other way around. Most people own cars – according to the Australian Bureau of Statistics, there are about 750 cars per 1000 people – three out of four. The important part is keeping your purchase within your means. You should consider points such as size – if you are just one person taking infrequent trips, a small car may be suitable. If you’re using your car for family commuting, a larger sedan or SUV is better, especially when it comes to space. You should also consider fuel efficiency as this can also tip the scales when it comes to affordability. Other factors that can affect your car affordability is:
- Its safety rating – can you afford to drive an unsafe car?
- Technology – do you need GPS and other infotainment systems? This can make your car more expensive.
- Primary location of use – a more rugged 4WD or ute is better for rural or country driving vs a compact hatch for city driving.
- Performance – V6 or V8 engines carry a premium and are less fuel efficient. A hybrid or hatch will have lower performance but save fuel.
- Resale value – will your car keep its value over time, or will it be a “money pit?”
The car you can afford is also informed by how much a lender or broker is willing to lend you to fund its purchase. The friendly team at Savvy can help you find out what type of car is in your price range with finance pre-approval. This also helps you haggle with dealers or private sellers.
How much car loan can I afford?
Finding out what kind of car you can afford is helpful before looking for a new car or shopping for a car loan. You can figure out what kind of car you can afford by looking at your finances. Adding up your income and spending is the first step to knowing how much you can afford in repayments each month. As a rule, using 20% of your monthly salary should be put toward car repayments as a maximum. According to Savvy’s research, the national average spent on repayments is about $130 per week ($520 per month.) This represents about 7.2% of an average household budget.
To figure all this out, you should use a car loan calculator. With this figure, you need to add on additional costs such as fuel, maintenance, registration, and insurance. You should always speak to a professional before getting financial advice. The team at Savvy can help you find an affordable car loan that gives you as much satisfaction as the car you intend to buy.
How does a car loan work?
A car loan is a financial instrument or credit product that enables someone to buy a car or similar type of vehicle. This is a formal arrangement between three parties – the buyer, the seller (or vendor), and a finance company (lender). The process begins when a lender agrees to lend you money to buy a specific car. You then formalise the agreement with the vendor in writing and with payment of necessary duties and taxes. The lender pays the seller on your behalf or may issue a cheque to give to the seller. Over several years (typically five though this can vary), the buyer then repays the lender with added interest.
Other financial instruments one can use to purchase a car is a personal loan – which may be secured against the car or unsecured; or a business loan such as a chattel mortgage or hire purchase. A chattel mortgage gives business customers the option to take possession of the vehicle immediately, finance the entire vehicle without a deposit, claim back GST, depreciation, and interest, and amortise extras such as registration. This is reserved for customers with an ABN who intend to use the car for 50% or more business use. Note these business products are not regulated by the National Consumer Credit Protection Act.
Finding a suitable car loan is part of the overall process of buying a car, and the team at Savvy can help you navigate the entire journey from beginning to end.
How to get a best car loan?
Getting the best car loan depends on your financial situation, your intended purchase, and your willingness to shop around. Firstly, if your credit is good and you have a large deposit to put into your car, this can work in your favour. Showing you’re a good borrower can often help you secure lower than average interest rates.
The second factor to help you get the best car loan is shopping around. You can figure out a good deal on a car loan by comparing several attributes of a loan which can include:
- The loan amount (how much you intend to borrow)
- The length of the loan (known as a term)
- If the loan is secured (tied to the vehicle) or unsecured
- Fixed vs variable rates
- Fees such as early repayment fees or account keeping fees
- Balloon payment options, redraw facilities, and other features
- If your lender requires comprehensive insurance – this is much like a “fee”
The type of car you wish to buy also has an impact on how much your loan will set you back. Buying a newer or certified used vehicle will result in lower interest rates as your car has higher residual value. Lenders are more hesitant to finance a used vehicle with hundreds of thousands of kilometres on the clock. As for shopping around, there are several traps to look out for. For example, a lower interest rate on a car loan may look favourable; however, if the loan term is longer, you might be paying more in interest. A balloon payment option lowers your overall monthly repayment, but a large lump sum is due at the end of the loan term. A broker such as the team at Savvy can help you with finding loans, as we’re linked with 25 of Australia’s best lenders.
What is an average interest rate on a car loan?
An “average” interest rate on a car loan is hard to determine due to many different factors. First, there are two types of loans that lenders use to market their loans. These are the bare interest rate or a comparison rate. A comparison rate is the interest rate with most the associated fees and charges you’ll pay over the loan term expressed as a number. Second, the loan term can affect the amount of interest you’ll pay proportional to the principal. An 8% p.a. loan over 7 years may cost you more in interest than a 10% p.a. loan over 5 years.
Car loan rates are also raised or lowered according to the official cash rate by the Reserve Bank of Australia. The increase or decrease is done at the discretion of the lender. Fixed rates will lock in a rate for a certain period, while variable rates may fluctuate up or down depending on the credit market. For more information, talk to a Savvy team member. There’s no obligation to apply.
How does Savvy compare car loans for you?
Savvy is a car loan broker service that has helped hundreds of Australians find lower rates and better deals on car loans since 2010. As a broker, we’re connected to 25 of Australia’s leading and most trusted lenders. Our team members take on your application and use our secure technology to compare rates with these lenders. Since we do a lot of business with these banks and lenders, they are all in competition to win your business. This drives them to give the borrower the best rate and package possible, which we then present to you as options. We take care of all the shopping around for you so you can save more on your car loan. This is how we keep striving for 100% customer satisfaction, every day.