Buying a car is a big decision, and there’s a lot of money at stake – which most people don’t have on hand.
We took a look at some of the options to get you into your next car.
Researching a car, finding the one you want and then negotiating on the price is often weeks or months worth of work for most people, so when it comes time to sign the contract – you’re often in no mood to hear a finance pitch from anyone who essentially want you to withdraw up to tens of thousands of dollars and hand it over to a car dealer.
So what are your options when you’re looking at financing your next car purchase?
Your bank will often offer finance, with bigger banks and credit unions offering specific secured automotive finance, and smaller credit unions and some online-only banks allowing you to take out personal loans (most with a higher interest rate.)
If your bank doesn’t have branch locations located handily near you or the dealership, it also means some more time running around to sign paperwork and present documents, which isn’t ideal if you’re busy at work or with the family given the ever dwindling opening hours of banks.
A more convenient option is to speak with the business managers at the automotive dealership who can work with you to find a loan that suits your lifestyle, and find repayment amounts you can afford.
Business managers often work with a few finance providers and can find a rate that suits you best. To go in there with the best chance of negotiating your rate; figure out how much you can put down as a deposit and take a look at your credit history – clearing up any debts that you can.
Another option to consider is the use of a finance broker to help find the best deal for your new car. Finance brokers have the freedom to speak to a wider variety of lenders then the banks or dealerships, and can often negotiate a deal that suits you. For example, if you are focussed only on getting the best rate, or if you require a loan that is tailored to your specific situation or lifestyle, a broker can find a finance option to suit.
Most finance brokers are mobile and have developed their business to be agile to allow the to fit around customers available time.
Refinancing your home loan
Some people also look to refinancing their home loan as a way to roll the new car purchase straight into their home loan.
You can do it in one of two ways: accessing a redraw facility or refinancing your mortgage to add the cost onto the principal amount.
If you make extra repayments on your home loan, you might have a redraw facility which uses your deposit and slowly builds up until such time where you can pay out your loan early using the amount.
Using your redraw doesn’t usually incur many penalties, but it does mean that you’ll have to put that money back into the home loan anyway which you’ve worked hard to build up.
Refinancing allows you to borrow against any equity you’ve built up in your home, and may require your house to be valued again.
If your home loan is pegged to a low interest rate (either fixed or your variable rate is significantly lower than a banks personal loan rate), you may be tempted to consolidate your payments into one repayment – and, on paper, it may seem lower than making repayments on a personal loan.
The major downside to this is that home loans are mostly issued over decades rather than a few years, so that small repayment suddenly builds up to a large interest amount over the years your paying back your refinanced loan.
For example, if you refinance to add another $30,000 onto your home loan at 4.42% over 25 years, the interest rate payments will blow out to $19,617 – that’s another car!
That also doesn’t include any upfront fees and charges from the lender, or if you sell your car before then – because it’s pretty rare to keep a car for over two decades, and you’ll have already tacked on the money to the total principal amount of the loan, which is being charged interest.
There are a number of options to consider when it comes to financing your next car. The CarBeagle is an independent finance broker, who can sniff out the best deal for your next car from some of Australia’s most trusted lenders.