There are plenty of questions to ask when purchasing a car. On one hand, there are those easy and fun ones around the car’s make, model and colour. But what about the difficult questions about the car's loan?
If you're thinking about your car loan, then you're in the right place. Below are 12 essential questions to ask yourself when getting a car loan. Or for more information about car loans, talk to an expert today.
1. “What’s my credit history?”
If you don’t know the status of your credit history, then this is a good place to start. Your credit history will be a key factor in determining what interest rate is available to you. That's why understanding your credit history is an important step in your search for car finance, especially if there are any bad credit challenges you need to overcome.
2. “What’s my budget?”
Do you have a household budget? Or are you keeping a rough ledger in your head? Yes, getting a new car is great fun, but you need to make sure that you're entirely comfortable with meeting all your loan repayments today and in the future. We recommend that you keep a detailed budget of your weekly spending – you'll most likely find and cut out unnecessary or excessive costs, making repayments easier to meet!
3. “What car can I afford?”
This question is one that is closely tied to your budget. What you can afford to pay each week will determine what kind of car you can get. Sure, you may have the latest model in mind, but you should still be realistic about what you can afford. Have a few backups in mind just in case your first preference is not possible.
4. “Should I get a fixed or variable rate?”
A loan with a fixed rate of interest means that the interest rate and repayment amounts will remain the same over the term of your loan. This ensures that there are no surprises in the future and that budgeting for your loan will remain consistent. By contrast, a variable rate will change over time – meaning that your repayment amount could increase or decrease in the future.
5. “What should be the loan's term?”
This is a question that could be answered once you have considered your budget and have a realistic interest rate and loan amount in mind. With these pieces of the finance puzzle together, you can get an idea of how long it will take you to pay off your loan. Also remember that while a longer loan term will reduce your repayment amount, more interest will accumulate. That is, the longer the loan, the more interest you will eventually have to pay.
6. “Are there any ongoing fees?”
Loans come with additional costs over and above the interest rate. These fees and charges could include an establishment fee and ongoing maintenance costs. Remember always to compare car loans using the comparison rate – the rate of interest that includes these additional fees and charges.
7. “Do I need flexibility?”
There may be other fees to consider when looking at car loans, such as fees for early repayment or early loan termination. To minimise these potential costs, it's worth considering if you’ll need flexibility in your loan, such as the option to make extra repayments or the option to refinance your car loan in the future.
8. “What's a good interest rate?”
The level of interest you can access will depend on a number of factors. Low-risk customers will be able to access low rate car loans while bad credit customers are typically charged a higher interest rate. To get an understanding of what interest you will be charged, speak to a bad credit finance specialist about your situation.
9. “Do I need a car loan urgently?”
If you're looking at a private purchase or want to make the most of a stocktake clearance, you may be short of time to find suitable finance. But beware: rushing or overlooking the finance step could lock you into a loan that is unsuitable for you. Even the best car deal can be reduced to naught if the finance is not a good deal too!
10. “Should I go with the dealership, a bank or a finance broker?”
After the test drive, you may be tempted to go with the dealership's finance. In most cases, however, your first loan option may not be the best deal available to you. You should shop around with a number of lenders – not just your everyday bank – and remember that too many finance applications can negatively impact your credit history.
11. “Will I need a deposit?”
In some cases you can borrow 100% of a car's value – in other words, no deposit car loans are possible. However, most people should aim to get a deposit together, especially if they have a bad credit history. A deposit will strengthen an application for finance and reduce the required loan amount – and therefore, the amount of interest charged over the loan's term.
12. “Do I need insurance or extras?”
Of course, compulsory insurance is a must. But beyond that, it’s up to you. Many people like having the peace of mind that comprehensive car insurance brings. And you can even add more protection if you wish; there is insurance available for almost everything, including your car's tyres and rims. Think about your needs today and in the future to identify your insurance requirements, or discuss these with a car insurance specialist.
Need some help?
Or simply at a loss at where to start? A personal finance specialist from Rapid Finance can help guide you through the car loan process. We’ll work hard to find a car loan that matches your situation.