This is a sponsored article, provided by RateCity.
Buying a car is a serious financial commitment, so it’s important you take the time to get the best possible deal.
People commonly make the mistake of applying for a loan before they’re ready and then rushing through the application process.
These mistakes could cost you thousands of dollars.
RateCity has put together six tips to follow when borrowing money to buy a car:
- Organise your finance first
Just like you should always get a mortgage pre-approval before you start looking for a new home, so you should get your finance lined up before you start looking for a new car.
Why? First, you’ll know exactly how much you have to spend. Second, you’ll be able to shop around for the best deal. Third, you’ll have time to fix any problems that emerge during the loan application process – and, yes, unexpected problems often emerge.
- Shop around
It’s so, so important to shop around, because there are dozens of lenders and products to choose from, and rates and conditions can vary greatly.
For example, if you wanted to borrow $30,000 over five years, you could wind up with a comparison rate of anywhere between 5.97 per cent and 17.80 per cent, according to a recent search on RateCity.
These are the 10 best competitive rates on offer:
- Do your homework
When you do shop around, make sure that you focus on the comparison rate, rather than the advertised rate.
The advertised rate is often an artificially low figure designed to lure in borrowers, while the comparison rate includes all fees and charges and so provides a real picture of the loan’s cost.
Also, check the repayment conditions. Can you choose your repayment period? Can you repay the loan early without penalty?
- Don’t have an itchy trigger finger
Looking at a range of loans shouldn’t mean applying for a range of loans.
Doing so can damage your credit record, cause when you make lots of applications that don’t turn into loans, it looks like you’ve had lots of applications rejected.
So settle on a favourite and apply for that loan only.
- Get your personal finances in order
Lenders want to minimise their risk, so the more reliable you can make yourself appear, the more they’ll loan you and the lower your rate will be.
So the higher your income, the better. The lower your spending, the better. The greater your savings, the better. The bigger your deposit, the better.
Anything you can do to improve in these categories will help your loan application.
- Think outside the box
Strange though it sounds, it can sometimes be better to pay for the car with a credit card than a vehicle loan.
However, this only applies to borrowers who would be able to pay off the loan during the credit card’s interest-free period. Otherwise, this would be a terrible strategy, because the interest on credit cards is usually higher than the interest on car loans.