Buying a new car is an extremely momentous and exciting occasion in your life. Whether it is your first car and a second-hand model, or your fifth car and you have opted for new off the shelf. The one thing that factors into both is being able to pay it off. Finding the right finance rate for your car is very subjective, and a lot of it has to do with your individual circumstances. So what is a good car finance rate?
Let’s take a look at this further.
What is car finance?
Having a car is almost a necessity in life for most people. From travelling to and from the office to dropping kids off at school and extracurricular activities, it can be hard to get by without them. In fact, some families even find they need two cars to make things work. The problem is, cars tend to gobble up money – fast.
If you don’t have enough savings to go out and buy a car (new or secondhand), taking out a car loan is a great option. It allows you to pay back the car in manageable instalments so you don’t feel the full hit of the purchase all at once.
Of course, it does come with a catch. Just like any other loan, you repay it with interest to the financial institution you borrowed from. So let us take a look at what is a good car finance rate?
What is a good car finance rate?
As previously mentioned, this often depends on your individual circumstances. But there are a few key factors that need to be considered when taking out a car loan. All these factors help determine your finance rate and how much you end up paying in the long run:
This is, of course, one of the biggest components to factor in when weighing up a car loan. The interest rate is expressed as a per annum number. Before taking out a loan (any loan) you need to know what that interest rate is. Your credit score can affect how much interest you pay. If you have bad credit and have a history of not paying off loans, a traditional lender is unlikely to take a chance on you. You may have to look for a non-traditional lender who will offset the risk with a higher interest rate.
The loan period
This can be as short as three years or as long as five years. If you opt for a longer-term loan it means your repayments each month will be smaller. However, you end up paying more interest overall.
In general, these are made monthly. However, you can always discuss with your lender if you would prefer to pay these off fortnightly or weekly instead. If you pay it off quicker, it can mean you will end up paying less interest in the long term.
Fees and charges
It is always important to look into other fees and charges that might be involved. These can add to the loan amount significantly.
How to get the best car finance rate?
Now that you know what is a good car finance rate and the factors that contribute to it, you can look at how to get the best rate for yourself.
You have a couple of options when it comes to taking out a loan:
- Take one out with the dealer: the finance rates are often higher with this option, but there is no planning required and it’s very convenient.
- Take one out with a bank or non-traditional lender: this option is less convenient, but often gives you the best rate. You are not relying on the dealer for both the price of the vehicle and the loan, so it takes away a bargaining chip.
The best way to get the best rate is to do your homework. Shop around and take a look at who is offering the lowest rates and whether the terms they set work for you.
What if I want to change my loan?
Firstly, it is important to determine whether refinancing your car is the right step for you. What exactly is it and what does it entail?
It essentially involves taking out a new loan to pay off your own loan. The main idea behind refinancing your car is to save you money in the process. If you manage to reduce your monthly repayments then it can free up that cash to be spent on other financial commitments.
There are four reasons you might look at refinancing your car:
- Lower monthly payment
- Lower interest rate
- Longer loan term
- Shorter loan term
If you are unhappy with your current situation and are looking into what is a good car finance rate, then this may be the best option for you.
Getting the right help
Whether you are in the stage of looking at different cars on the market and working out your finance options, or perhaps you bought a car recently (or not so recently) and are looking at changing your loan. It is always good to get a professional opinion. The team at Australian Lending Centre will look at your particular situation and offer the best advice based on your needs. Get in contact with us today.