CANSTAR Research Analyst Jack Smart let us in on his best tips for buying a car loan, and potential traps to watch out for.
- When you’re looking to upgrade to a new car with some premium extra features like tinted windows or alloy wheels, consider not buying the top model car just to get these. Instead, look for these extras elsewhere, as they’re usually cheaper after-factory. This means you can take out a smaller loan – with smaller repayments!
- A common tip from financial planners – and it’s a great one – is “Never take a loan out on a depreciating asset (like a car) unless you desperately need it.” If you do desperately need it (and let’s face it, most of us do need a car) don’t go overboard!
- Not shopping around for a car loan: Shopping around for a car loan can make a huge difference. You can compare car loans on our database.
- Not asking for a discount or a lower rate: When you know you have bargaining power such as a good credit history and a substantial income, you should always use that power. (Don’t just accept the car dealer’s finance offer!)
- Balloon payments: There aren’t a lot of these around, but if you do come across one, think carefully before jumping in. A balloon payment is when you arrange to offset an amount from the principal of your loan, to repay at the end of the loan as the final repayment. This allows you to pay smaller interest and therefore smaller repayments in the meantime. But at the end of your loan, when your budget is already tired from years of monthly repayments, that balloon payment can be a quite large lump sum – for example, $5,000 paid in one hit. Make sure that any balloon payment will be affordable at the time.
- Be cautious around extremely low interest rate offers. These introductory offers revert to an extremely high interest rate at some point during the term of your loan. Ensure that you understand how long the introductory rate will last and what the approximate revert rate will be at the end of that honeymoon.