How to make your car loan more affordable

A car loan is a big commitment, but it’s a commitment that lots of Australians have to make in order to get to work and beyond in comfort and safety.

In 2017, loans for new cars in Australia totalled $8.5 billion, with a further $6 billion in loans being used to buy used cars.

So plenty of Aussies are getting approved for a car loan. If your credit rating is pretty decent, you shouldn’t have too much trouble finding a loan that’s not too difficult to repay.

You need to find the right loan for you

A car loan is a long term commitment, so it needs to be easily affordable, or else you risk losing your car if repayments aren’t made in full on time. To find the right sort of loan for you and your circumstances, you need to think about a few things.

First and foremost is the amount you plan to borrow. You shouldn’t borrow more than you actually need and you should also look at the terms of your loan and how long it’s going to last. Think about how your circumstances might change over the duration of the loan; for example, are you likely to be promoted or are school fees set to be hiked? Look at factors that’ll affect your income and start from your lowest estimate when you compare car loans to be on the safe side.

Compare car loans from Australia’s major banks, credit unions and other lenders here.

Great tips to help you to get the best car loan for you

Even if you’re in a hurry to buy or finance your next car – whether it’s new or used – you can still take at least a couple of hours to find the most affordable car loans so that you’re not worried about the repayments. Here are five tips for helping you to do just that.

Work out how much you can comfortably borrow

This is the most important step because you need to know what your price range is. You need to use a car loan repayment calculator to work out how much of a loan you can reasonably apply for. It’s also essential to look at your monthly income and outgoings to see how much you have to spend on your new (or gently used) car once everything else is taken into account. Look at your utility bills, clothing, holiday funds, regular savings, mortgage or rent, entertainment, travel and so on. You should look at the maximum you can afford each month and then work down from there—it’s a limit, not a target!

It may be that you’re looking to refinance a car loanto reduce your monthly payments on your existing car, in which case you’ll still need to have done your homework before you approach any lenders. If you’re prepared, it shows that you’re serious, responsible and well-motivated. As you’ll almost certainly be looking for a secured car loan, you can be reassured that your interest rate and monthly repayments will remain constant for the whole term, which makes it easier to plan out.

You can use the InfoChoice personal loan calculator to work out repayments and total cost of a loan over time here.

Decide how long you want the loan to last for

It’s important to work out how long you can stand having the loan for versus how much you want to pay each month. You need to pin this down before you approach any lenders so you know what your budget is and therefore which cars are within your reach. There’s no point spending time online or in a dealership drooling over cars that you can’t afford (well, there is a point, but why torture yourself?).

As you already know, while a longer loan term means lower monthly repayments, ultimately, you’ll be paying more in interest. You’ll also be carrying that debt around for longer. Of course, if that’s the way it has to be, then fair enough. Just use a loan calculator to find your “sweet spot” of loan length versus monthly repayment size so you have an optimal experience.

Look for the most competitive loan within your means

If your credit rating is buoyant then you’ll probably be able to borrow more money and at a lower interest rate than someone with an indifferent-to-bad score. If you don’t know what your own rating is then find out before you apply for a loan so you know what you’re likely to be dealing with. Even if it turns out you are eligible for some of the lowest car loan rates, you shouldn’t max out your credit. If your score isn’t that great, consider offering a deposit on your favoured cars so the loan amount is smaller.

Compare car loans from Australia’s major banks, credit unions and other lenders here.

Don’t forget about the extras

If you’re getting the finance for a bigger, fancier or more-likely-to-be-stolen car, then your running costs may shoot up. Think about how much your fuel costs are likely to be, as well as tax and insurance. These are additional costs associated with your new car and they could push your fairly affordable payments into uncomfortable territory. More Australians now are looking at hybrid or electric cars and while you’re less likely to find a used electric car just yet, you’ll be saving quite a bit on the fuel, especially if you have solar panels.

How to compare car loans

When you’re looking for affordable car loans you need to make sure that you look at a good range of providers so you get the best deal possible for you. Here’s what you look at when you compare car loans:

• The rate of interest that is being applied to your “ideal” loan so you know whether you’ll end up paying a fair price or not
• The available repayment methods that come with the loan and whether you’re penalised for early repayment
• The maximum amount that you can borrow (remember this is a limit not a challenge!)
• The monthly payment that services the debt – it has to be comfortable for you for the duration of the loan, and
• The set-up fees or any other charges that might be applied on the loan, including late, default or early repayment fees.

By visiting infochoice.com.au, you can look at the market’s offerings side-by-side with ease, making it quicker to find the right deal for you and your circumstances.