Purchasing a car typically means taking out a car loan to help pay the costs off. Only some people buy a vehicle outright; most people in Australia use a loan to buy a car. They can be a great help because a car often becomes a necessity, and a loan can be extremely instrumental in allowing those who can’t afford to buy a car to use the money to buy one.
Normally, when people decide to buy a car, they spend days and weeks researching the ideal vehicle, but do they spend enough time researching the best car loan? Probably not. That is why we have compiled this comprehensive guide to explain what a car loan entails, the benefits and risks associated with it, and are best car loans in Australia. This guide will be your resource in providing all the information you need before buying your car through a loan.
What Is a Car Loan?
A car loan is a type of personal loan wherein a lender provides you with a lump-sum amount that you use to buy your car. You can use the loan to buy any kind of auto vehicle, including a car, truck, motorbike, etc. Then, you pay off the loan amount to the lender with an interest in monthly payments for a fixed and predetermined amount of time until all the amount is paid off.
What makes car loans different from other types of loans is the fact that they are secured. This means that the loan is secured with collateral, which is most often the car itself. Therefore, if you cannot repay the loan, the lender could repossess the car and sell it off to obtain the money. This applies to both used and new vehicles.
You can still find unsecured car loans, but they are likely to be quite expensive because they will have high-interest charges.
Types of Car Loans in Australia
1. Secured Car Loan
Most of the car loans are of this type wherein you give the vehicle as collateral or guarantee for repayment. This is done by signing a lien agreement, which makes the lender part-owner of the car. So, if you default on your monthly payments, the lender has the legal right to repossess or seize the vehicle. Once you complete all your payments, this lien is lifted, and your lender no longer holds any ownership over the car.
Since this type of loan is comparatively safer for lenders, they often don’t charge high-interest charges. So if that is something you are looking for, a secured car loan is your best bet. However, they will consider other factors like your creditworthiness and financial history.
You can find this type of car loan from private lenders or online lenders. The latter of them is much safer and more flexible, such as CashOnYourMobile that provides loans whether you want to buy a new car, have faced a car accident, or want to secure your loan with a vehicle. All you need to do is apply for the loan by filling out an application, and they will handle the rest.
2. Unsecured Car Loan
Unlike secured car loans, these are not secured by your car, and the lenders do not place liens on the vehicle. When the borrower defaults on their monthly payments, the lender does not hold any right to repossess or seize the vehicle. Instead, they might take legal action against the borrower.
However, since there is a greater risk for the lenders involved in this type of loan, they are not that common. Additionally, they also tend to have a higher interest rate than in secured loans.
3. Unsecured or Secured Personal Loan
Though not exactly a car loan, this is still a type of car loan in Australia because you can use a personal loan to finance your vehicle. You can borrow money from online lenders, banks or credit unions, or financial institutions. This can be secured or unsecured, depending on the lender. But be sure to check the interest rate and other charges as they will vary from lender to lender.
The best option for secured personal loans to finance your car is to borrow through online lenders like CashOnYourMobile because they have flexible terms and conditions on their car loans. Not only that, but they also provide them securely to you much faster than other institutions. In this, you can provide your car as collateral. If you want more information, click here to read about the details of the car loan they offer.
4. Lease Buyout Loans
Another option for car loans in Australia is through lease buyout loans, which put you on the path to buying the vehicle. In this, you will have to make payments to the person you are purchasing the car from or to the lender who accepts the vehicle for you. Over time, once you have completed all the payments to them, the lien is lifted, and you have bought the car.
Benefits of Car Loans
Taking out a loan to finance your car has several benefits for auto owners.
- You can get the car right away
You don’t need to wait to accumulate enough money with a car loan before buying the car. You can get it immediately as you will have all the money you need.
- You can spend the cash on other expenses
When you have a family and other people to support, sometimes taking a lump-sum amount of cash out of your savings to buy a car may not be a wise decision. This is because you might need the money in the future for emergencies, college fees, or unexpected expenses. With a loan, you are making monthly deductions from your account; this can be more favorable.
- It is more manageable in the long term
The monthly payments you make after taking out a loan are more manageable for some people than paying a considerable amount for the car because the monthly payments are usually low. Considering that you have 5-10 years to pay off the loan, it makes it all the easier to manage.
- It helps to build credit
Making on-time monthly payments on your car loan, you can expect to improve your credit over time. This can be particularly helpful for those who plan to take out more loans in the future and make significant payments.
Potential Risks of Car Loans
- They can be more expensive
Borrowers need to be aware of all of the costs before taking out a long-term loan because they tend to have high-interest charges. This makes them more expensive over the long run, so you need to be sure that you can afford to pay them off.
- You could lose your car
Again, you need to be sure that you can afford a car loan in the long term because if you miss one monthly payment, you will potentially lose the car if it is a secured loan. If an unsecured car loan, then you could face court action and a significant negative impact on your creditworthiness.
Factors You Should Consider Before Getting a Car Loan
After knowing the associated benefits and risks of getting a car loan, if you believe that it is something you can afford and would be favorable to your situation, it is also essential to look at what factors you need to consider beforehand. Knowing these factors will help you find a potentially cheaper and more appropriate car loan in Australia.
Before signing to a car loan, here are the four factors you need to consider:
· Loan Costs
The two significant costs included in a car loan are the principal amount and interest charges. The principal amount is the cost of the car itself. Based on that and the interest rate, the interest is determined. While these are the more prominent costs, the other ones can include the fees; some like the taxes and title costs you cannot negotiate. But the additional negotiable loan costs include delivery charges and origination fees.
· Interest Charges
The interest rate is a basic amount that the lender charges the borrower. It can include two rates; the annual percentage rate (APR) and the interest rate. Most lenders charge a different amount for these two. Hence when you are looking for a car loan, ask the lenders about the APR and interest rate and compare them to find the lowest one you can find.
· Down Payment
This includes the upfront cost you pay when you purchase your car. Depending on your lender, you can even trade-in your current vehicle as a down payment. Typically the down payment determines the borrowing amount since it is a percentage of that amount; the higher the down payment is, the less you need to borrow.
· Loan Terms and Conditions
This is a long document with a list of details regarding the car loan. It includes the loan terms, repayment plan, what would happen in case of an accident or theft, what would happen with repossession or freezing of the asset if the borrower defaults and cannot make payments, and insurance conditions. It can include more details and conditions, so it is important for you as the borrower to go through them carefully before signing on.
How to Apply for a Car Loan in Australia?
Now that you know everything about car loans in Australia, you might be wondering what the process to apply for one is. Though the process depends on the type of loan you are using for and the lender, the general process is as follows:
Determine what you can afford
This is a crucial step in the process and the first to make before venturing ahead with a loan. Because there are significant risks involved in a car loan if you default on your payments, you should be sure of whether you can afford it or not. Based on your financial situation, you should work out a realistic budget that fits in with the monthly payments. Some of the payments you will have to make besides the monthly one are the down payment, origination fee, maintenance costs of the car, and so on.
Check Your Credit Score
Once you have worked out your budget and determined what you can afford, you should check in to see where you stand in terms of your creditworthiness. Ask your bank or specific credit bureaus what your credit score is. This is important to know because your credit score determines the loan terms and interest rate. Typically, the higher the credit score you have, the better position you will be in.
Find out what the best loan for you is
Ask around from banks, private lenders, credit unions, and online lenders what terms and interest they are offering on the loan they are providing you with. Since these rates vary considerably depending on the lender, you should compare them before determining which loan is the best in your favor.
Shop for your car
Once you have found the best loan for you, it is time to go to the auto dealership and pick out the car you want. Provide your lender with details of the car and apply for car insurance when you buy the car.
The Bottom Line
Financing your car with a car loan can be a significant help and quite advantageous for some depending on their financial situation. If you require a vehicle immediately, a car loan can help you with that. However, it is equally important to find a lender who understands your situation, gives you flexible and favorable terms, and offers you low interest.
We recommend that you consider CashOnYourMobile if you are looking for the ideal car loan in Australia. They provide you with quick access to cash, and their application system is quite simple and straightforward. Even if you don’t have an excellent credit score, you can still potentially get the loan. If this fits with your needs, get in touch with them and apply for a car loan to them now!