Written by Katie Douglass
26/03/2021 | 5 minute read
Written by Nora Ackermann
19/10/2020 | 6 minute read
So, you’ve decided that it’s time for a brand spanking new car. Old faithful in the garage has done you well for years, but now it’s time for a bit of an upgrade. Now that you’ve made the decision to upgrade, you have so many things to think about!
Model, colour, new or used, manual or auto, and don’t even get us started on the price. If you’ve decided that you’re going to look at car loans to get your hands on your future wheels you’re not alone. But this opens up a whole new ball game of what to look for in your ideal lender. Not too sure where to even start? Never fear, Oiyo is here to help.
Cars are some of the biggest purchases you will make in your lifetime. This is especially true if you’re planning to buy a new car or a high-end car.
With this in mind, car loans are specialised personal loans that are designed to help you get the car of your dreams.
Car loans can start at just a few thousand dollars and go all the way up to $50,000 or more, depending on the lender you apply with. You will usually repay your car loan off over a set repayment period, generally between one to seven years and will have either a fixed or variable interest rate and can be either secured or unsecured.
In this day and age, you have quite a few options of possible lenders that offer car loans. From your traditional big banks through to smaller lenders or finance companies, you have some great options to choose from. Wherever you decide to apply, shop around first and see which lenders are offering the best interest rates and terms to ensure you get the best lender and loan for you.
Every lender is going to have different lending eligibility criteria. Be sure to always check your lenders’ eligibility criteria before applying to ensure that you do qualify. However, as a general rule of thumb, here are some of the car loans eligibility criteria that are common with most lenders.
Typical minimum requirements:
To qualify for any type of loan or financial product you must be at least 18-years of age at the time of application. This is a law that all lenders must follow, so it’s important that you do not submit an application before you are 18 as you will be automatically declined if you do not meet the minimum age requirements.
Generally, being an Australian citizen or permanent resident is the first eligibility criteria that you must meet in order to be eligible to apply for any car loans. This is important as lenders need to know that you’ll be in the country for the entirety of your loan and must be planning to stay. Anyone who is not a permanent resident of Australia and planning to stay in the country will not qualify to apply for a car loan.
Most traditional lenders and small lenders will require you to provide at least 3 months of good banking history. The longer your banking history is, the better. This history needs to show that you’ve been making your repayments on any current debts you might have or regular repayments. Being able to illustrate good repayment history will show any potential lenders that you can handle your finances well. Show this and you’ll be well on the way to being eligible to apply with car loans lenders.
Being able to illustrate sufficient reasonable credit history will be important, especially when it comes to traditional lenders such as your big banks. While your credit history doesn’t have to be perfect, the better your credit history is, the better your chances of being approved for a car loan will be. If your credit history is less than stellar, you can still apply, but just be aware that you may be a bit more limited in which lenders you will be eligible to apply with. You may also end up paying a slightly higher interest rate as well if your credit history isn’t too great.
Having current and up-to-date contact details is important as any lenders that you may want to apply with will require you to have up to date personal details that they can contact you on. Make sure you have a reliable phone number as you don’t want to miss out on any important messages that your lender will send you.
And finally, to qualify for most car loans lenders, you need to be able to show a minimum of 3 months worth of working income history or government benefits going into your bank accounts. This is important as your potential lender needs to see that you’ll be able to successfully repay your car loans if they do approve you.
The above are just a few examples of what any lenders, traditional or otherwise may require from you to be eligible to apply and be approved for any of their car loans. Remember to do your research on any lender you’re interested in before you apply to ensure that you meet their eligibility criteria. This will save you both time and effort if you are not eligible.
Knowing the difference between secured and unsecured loans will save you a lot of hassle and potential misunderstandings down the road. The more information you have on your options, the more confident you’ll feel in making a decision, knowing that you’ve done your research and are well-informed. Take a look at your options here:
Most car loans are secured as they’re usually for a substantial amount of money. This usually works by using the car that you are planning to buy as security or collateral against the loan. Having the car as security usually means that you’ll also be able to secure yourself a lower interest rate as the lender is not taking on so much risk. A secured loan can often be approved for a higher amount.
An unsecured loan means that you do not have to provide security or collateral for against the car loan. However, with this type of loan, your interest rate may be slightly higher as the lender is taking on more risk with no security. Also, keep in mind that you potentially may not be able to borrow as much money.
When it comes to car loans, you have a couple of different options in regards to your interest rate. Generally, you can choose between a fix or variable interest rate, depending on what will work best for you and your personal finances. Both types of interest rate have their pros and cons. Not too sure what the difference is? Take a look here:
Car loans with variable interest rates have repayments that can change, depending on the current interest rate at any given time. If the interest rate rises then your repayments will also increase, however, if the interest rate lowers, then your repayments will decrease. A variable interest rate is great if you want to take advantage of any interest rate decreases that may happen, but the downside is that there is always the potential that you will end up paying more if the rate increases.
A great benefit of a variable interest rate, however, is that variable interest rate car loans don’t usually have an early exit fee. This allows you to make extra repayments at no extra costs and get your car loan paid off faster.
A fixed interest rate car loan is an interest rate that is set and does not deviate. This is great as you’ll know exactly how much you have to pay off every pay cycle and won’t get hit with any higher than expected repayments due to varying interest rates. One thing to keep in mind, however, is that if the interest rate does lower you will not be able to take advantage of the decreased loan repayment amount as your repayments are set at a fixed rate. This tends to be the most common type of interest rate that is offered on car loans.
Before you head out and set your heart on the dream car, it’s always a good idea to sit down and organise your finances first to see what you can realistically afford first. A great way to do this is to utilise a few different car loan calculators. This is a great way to not only work out a decent budget for yourself but to figure out how much you might be able to borrow. If you have a general idea of how much you might be able to borrow before you go car hunting, you’ll know how much you’ll be able to spend and what kind of car (and price-tag) you can look for. This will save you a lot of time and effort down the road by avoiding setting your heart on a car that you can’t afford and likely won’t get approval for.
This might be a term that you come across often when on the hunt for your perfect car loan lender.
Balloon payments or residual payments are an option that allows you to pay off part of your loan as regular payments and then gets you to pay the final amount owing as one lump sum.
While this might sound like a great option as it makes your initial repayments smaller, the lump sum at the end of the repayment period tends to catch a lot of people by surprise. This is due to the fact that the lump sum will also attract interest and be a fairly large payment. This usually ends with the car loan costing more than it would if you simply repay the loan as per normal, with no lump sum at the end. Remember that if you do decide to choose the lump sum option, you’ll need to have enough cash put away to pay the lump sum plus interest amount at the end of your loan.
Getting a new car is a super exciting activity. There’s nothing quite like hunting through new and used car sales yards to find the perfect new ride, just for you. Buying a new car does come with a lot of responsibility though. From either putting enough savings away to buy the car outright, to needing to find the perfect car loans lender, there’s a lot to think about. Even once you have a car loan, you may be able to get a better deal later on.
When you start the journey of finding your perfect car loan lender, it’s important to do some research before-hand. With so much to know, from balloon payments and variable or fixed interest rates to car loans calculators and secured or unsecured car loans, it’s always a good idea to be well informed before you start your search. Ensure that you start your journey out right with some solid research and you’ll be off to a swift start.
Now that you’ve nailed all the basics of car loans, all that’s left for you now is to go and choose your dream car and colour.
Interested in car finance?
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It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.
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The Australian Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.*This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.