Financing your dream car
Apart from a home, a car is one of the single biggest purchases you are likely to make. Remember to make good financial decisions even with all the excitement.
- What can you afford?
What can you afford and what are you willing to pay? Those are the things that need to be considered for owning and running a car. This can include annual registration fees, insurance, roadside assistance, petrol, repairs, maintenance and road tolls.
- Choosing a car loan
A car loan is a personal loan taken out with the purpose of purchasing a new or used car.The money borrowed will need to be repaid within a certain period of time which is called the ‘term’. You will have to sign a contract that outlines the specifications of the loan.Loan terms can vary, while this makes repayments affordable, you may be left with a large amount of money to pay off. If you don’t pay off the full amount of the loan by the end of the term, or if you can’t afford to make equal payments over the life of the loan, the final payment must be made as a lump sum.FIXED AND VARIABLE RATE LOANS
You should always shop around! With car loans you can choose between a fixed or variable rate loan. With a fixed rate loan, the interest rate is locked in for the term of the plan. This means that your repayments will be set, so you know exactly how much you have to repay each month.But if you make extra payments from time to time to pay out the loan early, you may be charged an early termination fee. You will also have to pay account fees and charges.SECURED LOAN
With secured loans you offer an asset, such as the car you are buying, as security for the loan.Be careful, if you don’t make the repayments, the credit provider can repossess and sell your asset to recover the losses. The age of your car will affect it’s resale value. If your car is sold for less than you owe, you will still have to pay the credit provider the difference.UNSECURED LOAN
Unsecured loans are typically taken out for used cars. You don’t need to offer an asset as security, however, you may not be able to borrow as much.
Interest rates are also usually higher for unsecured loans because the credit provider is taking a bigger risk. If you don’t repay the loan, the credit provider can take you to court to recover its money.
- Get value for your money
Just as important as getting the best price on a car is getting the best credit deal. By shopping around for credit before you go shopping for a car, you can find a loan that suits your budget and circumstances.Many credit providers will give you ‘in principle approval’ for a loan, so you know exactly how much you can borrow and won’t be tempted to spend beyond your means.