The adrenalin is pumping. The excitement almost unbearable. Soon, that new set of wheels you’ve been lusting after will soon be in your garage.
But before you sign on the dotted line to buy that car, take a step back and breathe. If you can’t pay for it outright (and let’s face it, who does these days?), you’ll need finance.
And that, in itself, can carry some hidden traps.
So what should you look out for when obtaining car finance? We’ve outlined six of the most common surprises that people should be aware of – after all, your money is better in your pocket, not someone else’s.
What’s the security?
In general terms, there are two types of loans for vehicles. A car loan and a personal loan. In a car loan, often the car is used as security for the loan. If you’re buying a new car with personal loan, it may be unsecured, however you’ll end up paying more for the privilege. If not, property can be used as security, but that’s risky, too. Be very careful because you can lose more than just your new SUV.
Some repayments may seem too good to be true. And that’s usually because they are. Read the fine print carefully for the balloon payment – that’s the figure you’ll need to cough up at the end of the loan to actually own the car.
The lower the balloon payment, the higher the repayment figures. And the reverse applies, too. Suddenly that per-week payment doesn’t look so good.
Avoid loans that end with large balloon payments. Try to pay for the vehicle outright by the end of the loan. That way, once that final figure has been paid, it’s yours to keep.
This is the big one. Interest rates are ultimately going to affect your repayment figure, and clearly it pays to do some research to find out what the best rate is at any time.
Rolling a car loan into your mortgage is one option, as you’ll always end up with a lower interest rate than a dedicated car or personal loan.
However, some discipline is required; although the repayment figures are lower because they’re carried across the life of the mortgage, if you can pay it off in the five years a car loan will take, you’ll save yourself thousands of dollars in interest. If not, you’ll pay a lot more in the long run.
Be aware, however, of any fees associated with lower interest rate loans. These can quickly offset any rate advantages.
What’s the total cost?
Often the advertised price is not the final price. Once you factor in dealer delivery, stamp duty, licencing and other ancillaries, the end figure can be thousands more than what the sale sticker says. And that’s going to add more to your financed figure.
In addition, ask how much you will repay over the life of the loan.
In one instance, a car was advertised for just under $40,000. By the time the loan was fully repaid, the person had coughed up over $75,000, but, due to depreciation, was left with a car that was worth a third of that.
Here’s where self-examination is needed. Can you really afford these repayments? If not, you could be stringing yourself up for a whole lot of hurt when you start missing payments. And that affects your future credit rating.
If you’ve been knocked back for finance, don’t keep calling other financial institutions until one says yes. Instead, think about why the application was refused and what can be done to fix that.
Sometimes it’s best to swallow your pride and try again at a later time when finances are more viable.
As the old saying goes, “a bird in the hand is worth two in the bush”.
During the excitement of getting your car, it’s all too easy to agree to signing onto the dealer’s in-house finance company. The dealer gets a kickback from this, meaning you’re giving any money you saved straight back to the dealer.
It’s a good strategy to have your finance options prepared beforehand. Shop around to get the best deal, making sure you real all the fine print.
Stick to your price limit and have that pre-approved before you start your negotiations. Banks, building societies, credit unions and specialist lenders offer excellent interest rates and lower fees than most dealers are able to, so it pays to ask around to see who has the best deal.
Here’s the deal
When signing up for a new machine, it pays to be very alert to what’s going on. The finance people have done this a million times. You? Well, only a handful if you’re lucky.
That means they know all the tricks in the book, so use your head and not your heart.
Spend time doing as much research as you can before you buy your shiny new SUV and make sure that what you’re signing up to you can afford.
If you go into it with your eyes wide open, it’s going to be a much better experience, and less painful in the long run.