Car loans

A secured car loan is a type of financing where the vehicle you're purchasing serves as collateral for the loan. This means that if you fail to make your loan payments, the lender has the legal right to repossess the car to recover their losses.

Secured car loans often come with several advantages. Because the loan is backed by an asset (the car), lenders typically offer more competitive interest rates compared to unsecured loans. They may also be willing to lend larger amounts and offer longer repayment terms, potentially reducing your monthly payments.

However, it's important to remember that while secured loans can be more affordable, they do come with the risk of losing your vehicle if you default on the loan. Always ensure you can comfortably meet the repayment schedule before committing to any loan.

While it's possible to get a car loan without a deposit (also known as a no-deposit or 100% finance car loan), having a deposit can significantly improve your loan terms and chances of approval. Having a deposit improves your chances of approval as it demonstrates to the lender that you have the ability to save and are committed to the purchase. It also reduces the lender's risk, which often translates to a lower interest rate. By borrowing less, you'll pay less interest over the life of the loan, potentially saving you a substantial amount of money.

Some lenders offer no-deposit car loans, particularly for new vehicles. However, these loans often come with higher interest rates to offset the increased risk to the lender. They may also require you to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default on the loan.

If you're struggling to save for a deposit, consider delaying your purchase to build up some savings. Even a small deposit can make a difference in your loan terms and overall costs.

A balloon payment is a large, lump-sum payment required at the end of a car loan term. This type of loan structure allows for lower regular repayments throughout the loan term, but requires a significant final payment to settle the loan in full.

For example, on a $30,000 car loan with a 20% balloon payment, you would make regular payments on $24,000 over the loan term, with a final payment of $6,000 due at the end.

Balloon payments can be attractive if you're looking to minimize your monthly expenses. They can also be useful if you expect your income to increase in the future, or if you plan to sell or refinance the vehicle before the balloon payment is due.

However, they come with risks. If you can't make the balloon payment when it's due, you might need to refinance (potentially at less favourable terms) or sell the car. Also, because you're paying off less of the principal during the loan term, you may end up paying more in interest overall.

Before choosing a loan with a balloon payment, carefully consider your future financial situation and ensure you have a plan for handling the final payment.

Many lenders do allow early repayment of car loans, which can save you money on interest over the life of the loan. However, it's crucial to check the specific terms of your loan agreement, as some lenders may charge an early exit fee or early repayment fee.

Early repayment fees are designed to compensate the lender for the interest they'll lose if you pay off the loan ahead of schedule. These fees can sometimes outweigh the benefits of early repayment, especially if you're close to the end of your loan term.

If you're considering taking out a car loan and think you might want to pay it off early, it's worth discussing this with potential lenders before you apply. Some lenders offer loans specifically designed for borrowers who want the flexibility to make extra payments or pay off the loan early without penalties.

Remember, even if there is a fee for early repayment, it might still be financially beneficial in the long run if it significantly reduces the amount of interest you pay. It's worth doing the calculations to see if the savings outweigh the fee.

A comparison rate is a tool designed to help borrowers understand the true cost of a loan. It includes not just the interest rate, but also most fees and charges associated with the loan, expressed as a single percentage figure.

The comparison rate takes into account: The interest rate, Establishment fees, Ongoing fees (like annual or monthly account keeping fees), Any other charges related to the loan.
By law, lenders in Australia must display the comparison rate alongside their advertised interest rates for consumer loans. This allows you to more easily compare different loan products and understand their total cost.

For example, a loan might advertise an interest rate of 5%, but once all fees are factored in, the comparison rate might be 5.5%. Another loan might have a higher interest rate of 5.2%, but fewer fees, resulting in a comparison rate of 5.3%.

It's important to note that while comparison rates are useful, they're typically calculated based on a standard loan amount and term, which may differ from your specific circumstances. They also don't include all possible fees, such as late payment fees or break costs. Always read the loan terms carefully and consider seeking financial advice before committing to a loan.

The amount you can borrow for a car loan depends on several factors, including your income, credit score, existing debts, and the lender's policies. Lenders typically use a metric called the debt-to-income ratio (DTI) to determine how much you can afford to borrow.

As a general rule, many lenders prefer that your total debt payments (including your new car loan) don't exceed 30-40% of your gross monthly income. However, this can vary depending on the lender and your individual circumstances.

Your credit score also plays a significant role. A higher credit score can often lead to higher borrowing limits and better interest rates, as it demonstrates to lenders that you have a history of managing credit responsibly.

The value of the car you're planning to purchase is another important factor. Most lenders won't approve a loan for more than the value of the car, and many will only lend up to a certain percentage of the car's value.

It's important to remember that just because you can borrow a certain amount doesn't mean you should. Consider your budget carefully and ensure you can comfortably afford the repayments over the entire loan term.

Many lenders offer online car loan calculators or pre-approval processes that can give you an idea of how much you might be able to borrow based on your personal circumstances. These can be useful tools when you're starting your car buying journey.

It is possible to get a car loan if you're self-employed. However, the process might be a bit more complex than for traditional employees, as lenders need to verify your income and assess your ability to repay the loan.

When applying for a car loan as a self-employed individual, lenders typically request additional documentation to verify your income. This may include:

• Tax returns for the past two years
• Business activity statements (BAS)
• Business bank statements
• Profit and loss statements
• A letter from your accountant

Some lenders offer low-doc loans specifically designed for self-employed borrowers. These loans typically require less documentation but may come with higher interest rates to offset the perceived increased risk.

To improve your chances of approval:

• Maintain good financial records: Clean, organized financial statements make it easier for lenders to assess your application.
• Build a strong credit score: A good credit history can help offset some of the perceived risk associated with self-employment.
• Provide a larger deposit: This can demonstrate your financial stability and reduce the lender's risk.
• Have a stable business history: Lenders typically prefer to see at least two years of successful self-employment.

It's worth noting that different lenders have different policies regarding self-employed borrowers. Some may be more accommodating than others, so it can be beneficial to shop around or consider using a mortgage broker who can help match you with lenders more likely to approve your application.

While it might require more effort, being self-employed doesn't disqualify you from getting a car loan. With the right preparation and approach, you can secure financing for your new vehicle.

To apply, you'll need proof of income (payslips or tax returns), ID documents, address verification, and details of the vehicle you're purchasing. For used cars, we'll need additional information about the vehicle's history and condition.

While having a good credit score helps secure better rates, we work with lenders who specialise in different situations. We can explore options for bad credit car loans, though these typically come with higher interest rates.

Secured loans usually offer lower interest rates but require the car as collateral. They're typically best for newer vehicles. Unsecured loans might be more suitable for older vehicles or when you want more flexibility with the loan terms.