Look Out For These Car Loan Mistakes
It is easy to get caught up in the excitement of purchasing a new car. In fact, you can become so obsessed that you ignore the pitfalls of choosing the wrong car loan. Have you ever stopped to think that the price you really pay for a car is not what the dealer sells it to you for, but the total of the repayments you make to your lender.
Take an example. Say you purchase a new car priced at $30,000, and you take a car loan over 7 years at 11.5% per annum. The total loan repayments are $43,397.98! Doesn’t this make you wish you had taken a little more time and found a car loan that only cost 11% per annum? If you did, you would have saved over $640.
But the differences between car loans can get a lot more complex and there are plenty of things you can do to make sure you don’t break the golden car loan rules. The golden rules of car loans are:
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What Difference Do Loan Fees Make?
It’s amazing how many people fall into the trap of paying too much for their car loan. Especially when you realise that the price you actually pay for the vehicle is not what is written on the price tag. It’s how much you have to repay the lender.
For example a new car might have a retail price of $25,000, but if you take out the car loan at 11% per annum over 5 years you will repay a total of $32,317.39!
That’s why it’s important to find the best car loan, not just the best car.
But, digging a little deeper you may find that fees can add a considerable amount of money to the loan. In some cases a low interest rate loan for which you have to pay a monthly fee, might actually cost more than a higher rate loan with no monthly fees.
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New Car Loan Rules Change The Game
From 1 January 2011 the Australian government’s new credit regulations will change the way car loans work from now on. Although the changes are meant to give more protection to borrowers when applying for a loan, credit will not be as easy to obtain as it has been in the past.
In the past, lenders were able to make independent judgements as to whether or not a person was credit worthy.
New financial guidelines mean that it will be illegal for a lender to approve a loan product which is unsuitable for a borrower. The key word here is ‘unsuitable’.
There is no clear definition what this word means however, so we will have to wait to see how the courts handle any disputes.
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Should I get a car loan from the dealer?
How and when to obtain a car loan can be a tricky process if you don’t have much experience, and let’s face it, most people wait until last-minute to make the decision. For the most part borrowers tend to stay with their existing bank and don’t go to the trouble of obtaining quotes far enough in advance of their new car purchase.
In fact, many new-car buyers don’t give much thought to the car loan until they are at the dealership and can be tempted to take advantage of the one-stop shop type facility that car dealerships offer. It’s easy to be caught up in the moment of excitement especially after having chosen the car of your dreams and be offered an attractive purchase deal. It seems a logical and easy next step to talk to the finance manager & offer a loan that, at least on the surface, appears reasonable.
These days car loans are offered by a variety of lenders including banks, building societies, credit unions, private lenders and finance companies. As a general rule, car dealerships act on behalf of finance companies and some banks to offer a suite of products to their customers.
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Where is the best place to get a personal loan?
If you are shopping for a new car and want to make sure you get the cheapest car loan on the market you should start your car loan shopping at least a week before you start looking for your car! After all, what you really pay for your new vehicle is reflected not in the price negotiated with the dealer, but in how much you have to pay back on the loan.
These days you can choose from a broad range of car loan products that are offered by banks, credit unions, building societies, finance companies and car dealerships. Most new car and are used car outlets have a finance division with direct links to a range of finance companies and banks and will tempt you with a one stop shop offer so that you can not only choose the car of your dreams but obtain finance approval on the spot and drive away almost immediately.
This might seem a very attractive and easy option, and if money is no object, it could be a good way to go. But if you are serious about getting the cheapest loan on the market you need to do a little bit of homework first.
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Are all personal loans equal?
The short answer to this question is an emphatic no. Personal loans and car loans vary greatly from lender to lender and you need to do a lot of research to make sure you don’t pay too much. As you will soon come to realise, interest rates do not mean everything and it is quite possible to obtain a personal loan at a higher rate of interest that ends up costing you less in the long run.
But before we get to that let’s take a look at some personal loan essentials.
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How to get the best new car deal
If you have to get a car loan to pay feel you car then it goes without saying that you need to choose the cheapest loan in order to get the best deal on your new car. After all, what you repay to the bank is the price you really pay for your vehicle.
For instance, a $30,000 car loan over a seven-year term at an interest rate of 12% means that you will repay a total of $44,044.44. On the other hand, if you obtained the same loan at an interest rate of 11.5% you would make total repayments of $43,397.98. So, even the smallest difference interest rate can make a significant difference to the price of your car.
But there are plenty of other things you can do to make sure you get the best new car deal too. Apart from the obvious price negotiations and car loan negotiations there are some simple steps you should follow so you get exactly what you need and exactly what you pay for.
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How to pay less for your new car
One of the tricks that savvy in new-car buyers know is that car loans represent the real price you pay for a car.
What good is it to hassle the dealer for a low price when new fund the purchase with a personal loan it costs more than it should? As you read on you will realise that choosing the right car loan is the best way to pay less for your new car.
It might seem a relatively simple process to just rocked up to your local bank branch and apply free personal loan, have it approved and then place the order for your new car. Sure, it is a simple process, but it might end up costing you more than you ever imagined.
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How to Get the Best Car Loan
Obtaining the best car loan is as important as choosing the right car. After all, you don’t simply choose a car because it is the right colour, you check out the size of the engine, the accessories, its on road performance, the warranty and reviews from experts.
It should be the same with your car loan too, because if you choose the wrong loan you could end up paying hundreds or maybe thousands of dollars more for the car of your dreams.
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Should I Get a Preapproved Car Loan?
It is easy to get caught up in the emotion of purchasing a new car. Once you have seen the car of your dreams you might think it is easy to simply obtain your car loan from the dealership because it will save you a lot of time and effort. But the fact is car loans are far more important than that, and you should not make a quick decision, especially in the heat of the moment when the car of your dreams is in front of your eyes.
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