How to Approach Car Finance
With the end of the Financial Year upon us now can be an opportune time to consider purchasing a new vehicle. For the majority of us this means applying for a car loan to finance the purchase. It’s vital that you carefully consider all of the options on the table before driving your new wheel off the showroom floor. Here are our top five most important things to consider before you drive away.
1. DON’T JUST ACCEPT DEALERSHIP FINANCE
As a rule, car dealerships will only have a single Financier. At the time this may seem like the quickest & easiest option to secure finance. However, this may not be the most suitable option for your needs. Dealerships providing finance are not governed by the NCCP Act. This means that when finance is provided at the “point of sale”, dealers are exempt from the responsible lending guidelines contained under the Act.
Don’t forget the goal of the Dealership is to clear as much profit from your finance package as possible. It pays to shop around beforehand.
We’ve all been there – your new car sat there ready to go and they throw 60 pages of finance documents in front of you – “have a read and if you’re happy to proceed sign here, here and here”. Do you read it all, or do you just want the keys to the car? The convenience factor they will sell you can cost you thousands.
2. LOOK AT REPAYMENTS, NOT INTEREST RATE
Many people enter in to vehicle finance based on the Interest rate. Don’t. The most important thing to look at is the repayment figure. Would you rather a 2% rate and $700 repayment, or a 6% rate and $600 repayment? When comparing options, it’s important to compare like for like. Ensure the quotes are for the same duration, and the amount being financed is the same.
Whilst interest rates are important, by comparing the actual repayment required you avoid being tricked by high fees and low rates.
3. ONLY APPLY WHEN SATISFIED WITH THE QUOTE
Although many financiers will encourage you to formally apply to get the best deal for you, this could have an effect on your credit file. The more times you apply in a short period of time, the worse your credit file looks. By shopping around first you ensure you only need to apply once, and don’t damage your credit file.
4. UNDERSTAND WHAT IS ON YOUR CREDIT FILE PRIOR TO APPLYING
You are able to apply for a free copy of your credit file online. It is a good idea to do this prior to applying for a car loan, so you can address any issues before you apply. You are generally able to get a copy of your credit file for your own personal use without that inquiry being recorded. A financier who accesses your file for the purposes of providing finance will have to record their access.
5. USE A BROKER
Whilst you may be able to negotiate yourself a good deal, it will take substantial time researching different lender options. By using a Broker you immediately have access to a wide range of lenders.
Much like a Home Loan application, your Broker will do all of the research and present you with a number of options that are suitable for your needs. Not only does this save you time but can also ensure that you don’t place unnecessary credit inquiries on your credit file. Importantly, it also means you can avoid Dealership finance and be assured your needs have been assessed in line with Responsible Lending legislation.