4 important features you need to look out for when applying for a car loan
By Tom Watson, money writer at Mozo.com.au
So you’re on the market for a new set of wheels? Whether you’re buying a new car or a used car, it always makes sense to do your research on everything from the make and model you want, to safety features it comes with and even its potential resale value.
And while it might not be quite as exciting as visiting dealers and taking new cars out for test drives, it’s equally important to do your due diligence when it comes to financing your new set of wheels. After all, a little shopping around could save you hundreds or even thousands of dollars.
So to make your life easier, especially if you’ve never bought a car before, read on below for four of the most important features to keep an eye out for when comparing car loans.
1. Does it have a low interest rate?
Buying a new car can be really exciting, so there’s no sense in dampening your mood by forking out more than you need to. That’s why one of the most important car loan features you should be looking for is a low interest rate. It’s a feature worth comparing because it could save you a sizable amount over time – money that could be put towards petrol, repairs or a new sound system instead.
Let’s just say you were looking to take out a $25,000 car loan to be paid off over a period of four years, making repayments on a monthly basis. Calculating the loan repayments shows that you would pay $2,635 in total interest over four years with an interest rate of 5.00%, whereas that would increase to $3,735 if your rate was 7.00%. That’s a $1,100 difference over the life of the loan!
2. Are there minimal fees?
Second to finding a loan with a low interest rate is finding one that keeps fees to a minimum. Unfortunately fees are often part and parcel of taking out a car loan, but while they’re a feature nobody wants to see, they’re certainly one worth comparing as another way to reduce your overall loan costs.
So what kind of car loan fees should you be comparing?
One-off application fees, which are paid at the start of the loan, can often be quite hefty depending on the lender and loan, while service fees, which are typically charged on a monthly or yearly basis, can really add up over the course of the loan. It may also be worth seeing how much you’d be charged in the way of late payment fees if you were ever to miss a payment.
3. Does it include flexible repayment options?
For most people, taking out a loan to purchase a car isn’t a short term commitment – it can take years to pay off. That’s why finding a loan with flexible repayment options may be an important consideration.
The first question you’ll want to ask yourself is how long do I want to pay this loan off over? Generally you’ll be able to take out a loan from 1-5 years, though some lenders may stretch that out to ten years. Just remember though, the quicker you pay it off, the less interest you’ll pay.
Secondly, ask yourself if you’d prefer a loan that offers repayments that can be made on a schedule that suits you? This may be an important consideration if you want your repayments to line up with when you get paid, so if that is the case, you might want to compare loans that allow repayments on a weekly, fortnightly or monthly basis.
4. Can you pay off the loan faster?
All about reducing the interest you’ll be liable for by paying off your loan as fast as possible? If that sounds like music to your ears, you’ll want to look out for car loan features which either help or hinder you doing that.
The ability to make extra repayments towards your loan could be the most important feature to helping you pay off your loan faster, especially if your lender will let you make them for free.
On the flip side you’ll want to look out for any early repayment penalties or fees. These tend to come as a dollar figure or as a percentage of the loan, and though not all car loans come with them, they can often be seriously pricey.
About Tom Watson
Tom is a journalist and money writer at financial comparison website mozo.com.au. Covering the latest in banking and insurance news during the week, Tom loves to spend his weekends catching up on podcasts or hitting the road to go swimming down the coast.