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Beginners guide to car finance

Posted 12th April, in Car News, Finance News, Finance Tips

NuStart Finance | Beginners Guide to Car Finance
NuStart Finance | Beginners Guide to Car Finance

You’ve called it. It’s time for a new car.

The wheels that have served you for the last few years just aren’t cutting it anymore. Maybe you’ve got something in mind already or maybe it’s just the idea that has you thinking. Either way, the big catch is that it’s going to take an age to save the cash you need, which means it’s time to get your first car loan.

Getting finance can be a confusing process full of uncertainty for first timers. There’s a number of moving parts to a loan, and you can alter some of these to work in your favour. But what are they and how do you know you’re getting the best deal for you? Everyone has heard of pre-approval, guarantors, secured loans, and all kinds of interest rates but what do they all mean for your bank balance at the end of the day?

Getting the right loan doesn’t need to be complicated, and with a bit of knowledge under your belt you’ll breeze through the process and pick up your new car in no time. Our beginners guide to car finance will walk you through the process and give you the knowledge you need to make the right decision.

1. How much can I borrow?

Use our Car Loan Calculator to obtain an illustrative indication of how much your repayment may be and how much you can comfortably afford to borrow. You can make repayments on your loan on a monthly or fortnightly basis. There are a few variables which will affect the amount of your regular payment but this will give you a rough idea. More information on those variables later.  All loans are subject to credit approval criteria.

2. Apply for Pre-Approval

First of all, what actually is Pre-Approval? Pre-approval refers to the lender declaring that you are eligible to borrow a certain amount of, money providing certain criteria are met. When you apply for pre-approval you supply information such as how much you’d like to borrow, your income, your living expenses and any other fixed commitments. Gaining pre-approval for a certain amount of money doesn’t necessarily mean you’ll be able to buy just any car for that amount (more on that later) but it does give you an upper limit to work with. You can apply for pre-approval online here.

3. Choose your car

The fun part! Once you know how much you can borrow, you can really get stuck into your car search. You can use our Car Locator to take the hassle out of finding just the right car for you. Also note, you do not need to sign a vehicle purchase contract before seeking finance approval.

4. Interest rates

The interest rate offered will vary depending on a number of factors. As a general rule, the lower the risk to the lender, the lower the interest rate will be. Some of the factors the lender will consider are the amount borrowed, the type of loan, the age of the vehicle, and the financial situation of the borrower. Due to the number of factors that can alter the interest rate you will be offered, it is very difficult to quote accurately via a website.

5. Secured or unsecured loan

A secured loan is one that is “secured” by an asset of yours. In the case of a car loan, this will usually be the car you are purchasing. Secured loans tend to carry a lower interest rate due to the reduced risk taken by the lender. If you were unable to continue paying off your loan, the lender would re-possess your car to cover their loss. The vast majority of car loans are secured loans.  An unsecured loan is one that is not tied to any asset of yours. An unsecured loan will tend to carry a higher interest rate, but it does grant you the freedom to sell your car without breaking your loan contract, more on that later.

6. Loan term

With NuStart Finance you will be able to choose any loan term between 2 and 7 years, subject to credit assessment. Your regular repayments will change as you alter the length of the loan. If you would like a smaller regular payment choose a long term, if you want to pay it off quickly or can afford a higher regular payment, choose a shorter term.

7. Guarantor or Co-borrower

If you are having difficulty gaining finance approval, a guarantor or co-borrower will potentially work in your favour. In this situation, the lender will take the income and financial position of your guarantor or co-borrower into account as well as your own. A guarantor is someone who will take responsibility for your loan should you not be able to continue paying it off. This is usually an immediate family member such as your partner or parents.  A co-borrower is someone who you jointly sign a loan with. In this arrangement, the co-borrower and you are equally responsible for repaying the loan. These arrangements minimise the lenders risk and therefor increases your chance of gaining finance approval. Before agreeing to be a guarantor the person must be aware of the responsibility they are taking for your loan.

8. Can I get a loan for a used car?

This is one of the most common questions we’re asked and the answer is yes, you can get a loan for a used car. The conditions of your loan will vary depending on the age and type of car you are purchasing, particularly for a secured loan. As a general rule, you will be able to get a better finance deal on a newer vehicle. An unsecured loan may be a better choice for older vehicles. Keep this in mind when you are selecting your car.

9. Can I pay my loan off early?

If your circumstances change and you are able to pay your loan off faster we won’t stop you. There may be an early termination fee which will be outlined in your credit contract.

10. Can I sell the car before I have paid out my loan?

Yes you can, however there are some conditions.  If you have a secured loan against the car this security needs to be lifted. This is done by paying out the amount left on the loan. If you can not do this in one lump sum, we may be able to arrange a new loan to pay the balance of the previous loan, subject to credit assessment. If you have an unsecured loan, you are free to sell your car whenever you like without impacting your loan.

Ready to get started on your way to that new car?

Our Beginners Guide to Car Finance gives you the information you need to make the right choice for you. Use our Car Loan Calculator to find out how much you can borrow, apply for pre-approval, and get your search under way with our Car Locator. If you have any questions or would like to speak to one of our experienced finance consultants, call us on 1300 883 983.

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