It gets to a point in life where you will realize that owning a car is not for status but also for time-saving and convenience. Whether working or at school, a car becomes necessary if you have to be on your schedule. Not everybody out there has enough money in cash or savings to purchase a vehicle, whether brand new or second hand. If you are in such a situation, don’t worry. That is the point where car financing comes in. Keep reading so that you get to know what car financing is all about.
What is car financing, and how does it work?
Car financing is the act of taking a loan to purchase a car. Since you do not have enough money to buy a car, a lender gives you the balance to buy the said car. In return, you will pay back the loan in monthly instalments plus interest and any other facilitation costs. The loan is supposed to be paid back within a certain period. If you agree that the loan is payable within 24 months, that is the car loan term.
When you pay your monthly instalment, part of it goes to the payment of the principal. The rest of the money caters for the loan interest and any other costs incurred when processing the loan.
What to consider as you look for a car loan
1. Interest rates
The interest rates should be the number one determinant of taking a car loan or not. The higher the interest rates, the more money you will pay back. It is also essential that you look at the way the lender calculates their interest. Do they use the simple interest, or do they offer the recomputed interest auto loans? Always go for a loan that you can comfortably pay.
2. The period
How long will it take to offset the loan? In most cases, the repayment period is two to five years. When you go for a loan with a longer term, you will find that the monthly instalments are smaller. Even then, the interest you pay by the end of the loan term will be higher. It is therefore advisable that you select a shorter period. You will pay higher monthly instalments but less interest at the end of the loan term.
Most lending firms prefer that repayments be in monthly instalments. It is okay to discuss how you want to pay your loan. If you receive weekly earnings, you can choose to make weekly payments. Other borrowers prefer making payments after every fortnight to weekly payments. Whatever works for you, go for it. Note that the more often you make the repayments allow you clear off the loan and reduce the interest.
4. Hidden costs
Before you take the car loan, know everything about it. How much is the processing fee? Some lenders also ask for an upfront payment before they can disburse the loan. How much is that? What if you make a late payment? How much is the fine? These charges can amount to a significant figure at the end of the day.
5. The lender
Do research about the lender. How long have they been in business? How many loans have they processed, and what are the reviews from their customers? Such information helps you make a sober decision on the lender you are going to choose.
What do you need to qualify for car financing in Australia?
• The details of the car. Disclose everything about the car you are purchasing? What is the buying price? What is the number plate? What is the engine model? Is it a new or used car? Does the car have outstanding finance owing? Click here to learn what to do if you have bought a car with finance owing.
• Be a citizen or a permanent resident in the country.
• 100 points of ID.
• Be of age 18 or above.
• Proof of income. If you are employed, you will need to provide three of your latest payslips. If you are self-employed, bring your bank statement and tax returns to the lending firm.
• Your assets and liabilities. This information helps the lender analyze how much you are worth. Assets- liabilities= owners’ equity.
As you intend to get car financing, note that the interest rates of a car loan to buy a used car are higher than that to buy a new car. It is also essential to know that purchasing a vehicle with car finance ownership can be very dangerous. If you get in an accident and want to claim from your insurance company, they might not pay you. They will pay the person or firm that has the car as security. It is, therefore, vital that you do background checks when purchasing a vehicle so that you do not get trapped.