5 questions to ask yourself before getting a car loan
Looking to buy a car but are unsure what financing option is right for you? Whether you’re upgrading your car or buying your first set of wheels, figuring out financing can be time-consuming and confusing. If you’ve decided that a car loan is the way to go, here are some questions you might want to consider before applying for that loan.
1. What is my credit score?
One of the key things to do before you apply for credit is to find out your credit reputation and take a look at your credit history. Lenders can use credit scores, credit reports and other factors to assess the risk of lending you money. Your score can also determine what interest rate and fees may be available to you.
If you have a high credit score, you could be paying lower rates and fees, however, if you have a low score, you can find ways to improve it to help increase the likelihood of your future car loan application getting approved.
Don’t know your credit score yet? You can find out for free with Credit Savvy today!
2. What car can I afford?
While it’s important to be picky when choosing the brand, model and features of your new car, you should also be realistic about what you can actually afford. Preparing a detailed budget can help you get a clearer view of your finances, so you can find out if you’ll be comfortable with meeting your loan repayments.
Try our Personal Loan Calculator to work out your monthly car repayments and how much interest you’ll pay over the life of the loan.
3. Are there any ongoing fees?
Aside from finding a loan with a competitive interest rate, it’s also important to look at the one-off and ongoing fees attached to your loan. From establishment fees, account keeping fees and early exit fees, what might seem like a low rate car loan could end up costing more than you originally imagined, so it’s important to factor these into your calculations.
Remember, don’t focus purely on the interest rate when choosing your car loan. You might also like to pay attention to the comparison rate, which includes additional fees and charges and is a more accurate representation of the total cost of the loan.
4. What is a balloon payment?
A balloon payment is an inflated one-off lump sum that you agree to pay your lender at the end of your car loan’s term. It helps you lower your monthly ongoing repayments. It’s important to consider that if you choose to add a balloon payment, the cost of your loan in the long term is higher and you’ll end up with a big bill to pay at the end of your car loan term.
5. Is the car loan flexible?
If you plan to pay out your car loan ahead of time or there’s a chance you’ll want to upgrade your car before you’ve made all the payments on your loan, it may be worth checking if your preferred car loan has the option to make fee free extra repayments to minimise potential costs, such as, early repayment or early exit fees.