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7 Steps to the Best Car Loan

published  First Published: 20/01/2010
Article written by: Darryl Houston
Nigel Brookson (Managing Director of Financial Solutions Online) says that due to the past years financial slowdown many banks and finance companies have tightened up their lending policies, and look for more secure applications to lend to.
Step 1 - Car loan vs personal loan
CAR loans are an example of secured personal loans, where the car being financed is taken as security that youll repay the money. Theyre specific loans, so you cant change your mind and use the cash to go to Bali instead.
Step 2 - Understand the interest rate
The better the security, the smaller the interest rate. Lending starts for a new car at a cut-throat 6.8 per cent interest (thats about the lowest car loan rate going and only if you completely meet the 6 'C' of credit Assessment, as documented by Mr Brookson.
Without security, you are looking at an unsecured personal loan and the interest rates are higher, due to the extra risk to the lender.
The age of the car will also affect the interest rate. The newer the car, the lower the interest rate that will be offered.
Step 3 - Putting a car on your credit card
Credit cards offer more flexibility (interest rates have been slashed on many no frills credit cards), while car loans wipe out the debt in a fixed number of years, through monthly instalments. Yet cards arent likely to be offered because of the hefty merchant transaction fees ($800 on a $25,000 car) incurred by the car dealer.
Step 4- Look Carefully at Dealer Financing
Beware of dodgy credit offers from car dealers which give them a big commission but leaves you spending years paying off.
Finance from the yard can be a good idea though, as many, especially the used car dealerships use car finance brokers to organise finance for their customers, and they will shop around to get you a good deal.
Preferably organise your loan before buying a car or at least separate haggling over the car price from the cost of a loan. Get to know the current interest rates to work out if youre getting a good deal.
Compare loan providers by asking for the total cost of the loan, including interest rates and all applicable fees.
Remember though just because a Bank, or Finance company advertises a Rate, it does not necessarily mean you will get it. there is always the fine print wording that says TAP, or to approved purchasers or TAA, to approved applicants. The best rate will go to the applicants that are the strongest, according to "The 6 'C' of Credit Assessment".
Step 5 - Check out Credit Unions
Banks and building societies offer car loans but credit unions have made car loans and personal loans a specialty and offer very competative rates, says Mr Brookson.
Yet they vary, as do loans features, terms, interest rates and fees from banks, credit unions and other lenders.
Step 6 - Check out Options Online
There are numerous online websites that have comparisons of the different lenders and loan types. One such website is www.loans-australia.com.au and enables people to also apply online for a finance or loan quote, even with a poor credit history. Another one is www.personalloansonline.com.au and specialises in finding loans for people all with an online process.
Step 7 - Check out Car Loan Brokers
Brokers are people or companies that generally do all the running around for you and know where to get the best deal for you given your unique profile and circumstances. National Finance Choice is a nation wide broker that specialises in car loans for people.
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