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The idea of buying a new car is an emotional thrill. Once you have made up your mind on the new vehicle you want, it’s time to put that dream into reality. The chances are you may not have the money in your savings account to pay in cash. This means getting car finance from a lending institution. Careful thinking is needed to avoid being entangled in debts or paying high interest rates. With the right car finance package your savings can be substantial.
Start by checking the health of your credit rating
First thing to know is, there is a correlation between the interest you pay for your car and the status of your credit report. A healthy credit report gives lenders confidence that:
- you are able to pay back the loan
- can make repayments on time
It’s derived from the history you acquired with other lending institutions. If you have defaulted on your loan repayments or have overdue accounts that are not paid on time, you need to clear all this before applying. It will make getting a loan much easier and enable you to get more favourable terms.
If your past credit history is not as ideal though, there are workarounds to secure a better car finance deal. A good one is to borrow a smaller amount of credit beforehand, and repay them on time. It puts you in the good books with your lender. It can help in arguing that while overall credit rating may not be ideal, recent behaviour indicates you are able and willing to make regular payments on time. Small proactive demonstrations like this one can really help swing the deal.
Select a loan package you can afford
It’s basic human psychology for people to think about what they believe they can afford, without verifying if they can really afford it. These two ideas can be very different, in which case a car finance calculator is a very handy tool. It can determine what you can really afford in the market. You can juggle with various amounts, repayment periods and balloon repayments before settling on a plan that is practical for your situation. As well as thorough car finance comparisons between different lenders to get the best terms.
It’s also good to talk with a financial consultant, to get multiple opinions. A consultant can detach you from your own emotion surrounding financing a new car. They can assist you in settling for a realistic amount depending on your monthly income and expenses. Also, talk to your lender on the decision and get feedback. Again the lender may consider you can afford considerably more or less than your own estimated amount. This all helps you work out the best deal for your loan.
Decide on additional add-ons and costs for your car finance package
Cars come with various options installed. They include metallic paint, added security installations or added features. Such modifications all add prestige to the car, however they can also bloat the price. It’s important to know what added options you really need in your car and exactly how much they would cost. Be realistic and base your thinking on what genuinely adds value to your driving experience.
After buying your car, you need to have it insured and pay for any after market extras. These again are additional costs to your overall car finance rates. Having a clear picture of what you want makes it hard for the sales team at the showroom to change your mind.
Finally, check for areas that you can negotiate for a better deal. Look out for sale offers from different dealers and check if they allow for a trade in if you have an old vehicle. Car dealers are competing for your business after all. So you might as well work it to your advantage when doing your car finance comparison.
Decide on the type of financing structure
Having the right package in place goes a long way to saving you money. Interest, missed tax deductions, fees and exit penalties can pile up on top of the car cost. Several car finance lenders have developed different structures for customers to choose what they are comfortable with.
When setting on a finance structure, determine if you are paying a deposit or trading in your vehicle. Check if the structure has tax implications if you are buying on behalf of the business. Check out if there are any tax deductions that you stand to gain. In addition, check if you are going to be paying residual or balloon repayments.
You should also verify the length of time within which you need to pay back the loan. Determine if the payments are to be made on a weekly, fortnightly or in monthly periods. Finally, look out for penalties for paying out your loans earlier than scheduled.
Seek pre-approval for your car loan
It is easy to apply for approval for car finance and often minimal paperwork is needed upfront. However, you may need to provide some documents to the settlement. Your consultant can assist with this.
Pre-approval gives you confidence as you are sure of what amount you are to spend. You are also at liberty to negotiate finance on top of your amount of purchase. Pre-approval also helps you to make major financial decisions beforehand. These depend on the amount you’re going to spend on your car, and shield you from making impulse buys. Lastly, a pre-approved loan gives you more power to negotiate for the best deal. Sellers are more willing to offer better deals to clients that are ready to buy.
Above all, remember there’s always high competition among lenders. They want your business and this makes it easier for you to get better and more flexible car finance options. Do a background check on the lender if you have never dealt with them in the past. It will help understand their working procedures and adjust accordingly. Otherwise use a financial institution that you have developed a relationship, for maximum peace of mind.