Cars

Finance

If you are looking to buy a car, but haven’t saved enough cash then you will probably need to apply for a loan from a credit provider. Credit providers are places that will loan you money such as banks, credit unions, finance companies and car yards.

When taking a loan to purchase a vehicle you must remember:

To always shop around and compare loans
Try to limit how much you borrow
Make sure you understand what could influence the loan repayment amount e.g. interest rates, fees, life of the loan, repayment periods etc.

Finance is something that can be difficult to understand! If you are unsure about anything it is always best to ask someone that has had experience with finance before such as parents, friends or even the credit providers themselves.

Secured or Unsecured?

Credit providers offer both secured and unsecured loans. Effectively the difference between the two loans is that secured loans have an asset or collateral (Car or other valuable things) that can be repossessed if the borrower fails to pay the money back.

Secured loans:

Secured by an asset or something valuable such as a car
Lower interest rate
Higher chance of approval

Unsecured loans:

No security assets or valuable items required
Higher interest rate
Lower chance of approval

Fixed or Variable?

A fixed interest rate loan is where the interest rate does not change for the period of the loan.

A variable interest rate loan is where the interest rate may change during the term of the loan. A variable interest rate can go higher (more expensive repayments) or lower (less expensive repayments) throughout the period of the loan.
Always be careful: The lowest interest rate may not necessarily mean the lowest repayment! Always check to see if the loan has hidden or additional charges, making your loan more expensive.

What you need to provide

If you are applying for a loan the credit provider will generally ask for the following information:

If you have a job and how long you have been employed;
How much you earn;
Terms of your employment (casual, full-time, etc);
Other living expenses (rent, mobile phone plan, groceries, etc) and
If you have other debt (credit cards, other loans). If yes, what for and how much is owing.

Credit providers will also take into account the following factors of a loan application:

Your credit rating and;
Valuable possessions that you own (if applying for a secured loan)

How much do you need?

What you need is what you can safely afford!

How do you work this out?

Prepare a budget
Write down all of your expenses - this includes the car expenses such as fuel, registration, insurance, maintenance
Subtract them off what you earn on average per week/fortnight or month
How much is left?
This will give you an idea of what can you afford to pay back per week

It is really important to leave some money in reserve each week. It’s always better to have money you can use if something comes up that you really want to do or buy.