How to Be Smart with Your Car Loan

12 May 2016 Learning Centre

How to Be Smart with Your Car Loan

If you’re getting ready to jump into the driver’s seat of a new car, you might be tempted to accelerate the process and make your purchase as soon as you can. And that might mean getting your car finance approved.

But before you apply for a car loan, it’s worth getting some details clear. Buying a car isn’t just about finding the right make and model to suit your needs - it’s also about matching your finance to your situation.

We’ve pulled together our list of six areas to explore before applying for your car loan. These will give you the information you need to get the car loan that’s right for you, and they may also prepare you for any speed bumps you may encounter along the way.

What is your credit record like?
Your credit record affects the ability of companies to lend you money. It’s basically a record of your financial performance in relation to payment of debts like home loans, hire purchases, and any other finance agreements. It can include details on items such as utilities (power, rates etc.) or mobile phone bills.

If you’ve failed to make a payment at any time then it might appear on your credit record. If you’re not sure of your status, you can request your records. Check out the New Zealand Government website for details on how to get hold of them.

If your credit record is poor, you may be refused credit or have to pay a premium to borrow money because of the risk that you may miss a payment. This may impact your budget as repayments will either become higher or take longer. Contact our team today if you’d like to understand more about how this could impact you.

What can you afford?
Building a realistic budget is essential to managing a loan. This will also help you understand what kind of car you can afford. When you build a budget for your car loan, you will need to work out how much money you have available to make repayments, and how regularly you would like to make them.

Remember to take into consideration the running costs of the car as well as the cost of the loan. Running costs include fuel, insurance, registration as well as warrants and servicing.

Can you pay a deposit?
The higher the deposit up front, the smaller your loan will be. That means lower repayments, or the ability to pay off your car even faster. Either scenario results in less interest for you to pay, so it really is worth going for the biggest deposit you can afford.

Balance the interest
Once you’ve decided on your loan amount, it’s important to think about how you can minimise the cost of borrowing for your car. If you want to reduce your interest payment, the most effective solution is to reduce the length of time that you borrow for.

Take a look at our repayment calculator and try adjusting the loan term to shorten the length of the loan. Reducing the loan period can often require only a small increase in the size of your repayments, and can save you a lot in interest over the long term.

Cash where you can
It’s a great idea to get your loan set up before you go shopping for a car. This will mean that you know exactly what budget you have to play with, and may even help you to increase your bargaining power.

What can take you by surprise is the number of small costs that you may have to deal with as part of the purchase - for example: if you choose to have the car checked out before you buy it; insurance; any add-ons you may have chosen; the warrant or extended warranty; even the first tank of petrol.

It’s tempting to get any or all of these costs added into the total purchase amount, using your car loan to cover everything. Remember though, that you will pay interest on every dollar you spend from your car loan. If you have cash to cover the immediate bills you encounter, then try to use it, and enjoy paying off your car loan faster without the additional interest to pay.

Plan for the future
Circumstances can change, and it’s important to plan so that repaying your car loan doesn’t become a challenge in the future. Take a look ahead and work out if your circumstances will make it important to shorten the duration of your loan.

For example, you may have decided you need a car while you’re at university. But if you’re planning on doing your OE in three years’ time, it might be wise to make the term of your loan less than three years so that you’ve completed your repayments before you go overseas.

Or maybe you’ve started a family and would like to have the car loan paid off before you stop work again for your second child?

Whatever your circumstances, it’s worth planning for the future when you set up your loan. The shorter you keep the length of your loan, the less likely you are to hit roadblocks along the way.

Being prepared can help you understand exactly what you need from a car loan. At Enterprise Motor Group, we make sure we are flexible to your circumstances and we work hard to make your loan suit your needs. If you have any questions or would like to apply, contact one of our team HERE, and they will be happy to guide you through your application.