Buying a new car? Things to know about car finance
You are in the market for a new car. Car finance can make this possible. With the right loan, you may have more choice about which car you can buy.
But what does it mean to take out a car loan? And how do you decide what’s right for you?
Here, we break it down for you.
What is car finance?
Car finance is a loan or lease you take out so you can purchase a new or second-hand car. Car loans are personal loans provided by lenders for the specific purpose of buying a car. Like your home loan, you pay your loan back over time, plus loan fees and interest.
The interest and fees vary between lenders. Interest may also be affected by how new the car is, and depend on your credit rating. For example, if you have a low credit rating, you may be required to pay a higher interest rate.
When you take out car finance, you agree to a term or length of time for paying back the loan. The term will vary from 12 months to about five years. A shorter term will mean larger repayments. It’s up to you how much you can afford to pay back.
Sometimes, you are able to make a lump sum payment at the end of your loan if you have not been able to afford equal payments through the life of the loan. However, paying out the loan before the end of term may incur a fee.
How do you choose the right car finance?
When you are choosing car finance, there are a few options to consider.
The interest rate is either fixed or variable. A fixed rate means the interest rate is set, so you know exactly how much you are paying back over the course of your loan. A variable rate may change over time. If a variable rate is lower than the fixed rate at the time of purchase, you have to consider that the variable rate may increase over time. It may also decrease. With a fixed rate, you know what you are getting.
Your loan can also be secured or unsecured. A secure car loan means you offer an asset, such as your new car, to secure the loan. If you cannot make repayments, or pay out the loan at the end of the term, your new car may be repossessed. An unsecured loan means you don’t offer an asset. Unsecured loans may be subject to higher interest rates, and may only be available for second-hand cars.
Get advice
Your Mortgage Choice broker is able to help you choose the right loan for you. They understand your specific needs, and can show you the most appropriate options. They can talk you through the different rates and conditions.
