How To Get A Car Loan
Fact checked
How to get a car loan?
What is a car loan?
As you already know, a car loan is simply a secured loan dedicated to purchasing a vehicle which serves as the collateral. Pretty simple, so far.
If you’re looking at getting a car loan or currently in the middle of the process, you might find yourself having questions that you never anticipated before. Don’t fret. If all the math is a tad intimidating, our team of experts with years of experience can assist you in finding the right car loan and connect you with the right lender.
First things first
Australia’s love affair for cars made it home to more than 47 car manufacturers. And if you’ve already decided which car to go for, congratulations! You pretty much have an idea how much you need to borrow. The next step is to shop around for the best offerings on car loans.
You should do your research online to find a lender, check rates or fill out online pre-approval applications. We have access to more than 25 accredited lenders proven to offer the most workable lending solutions for you.
See how savvy helps you find a better car loan
Trusted network
Flexible repayments
Personal consultant
Some of the basics on how to get a car loan
Get started with organising your documents
The thought of speeding away on a new car is thrilling. The thing is, there’s quite a few paperwork that you need to organise before you could speed away in that metallic red Holden. Here’s a quick checklist to get you started:
- 100 points ID. This could be a combination of your driver’s license (60 pts.), passport (50 pts.), birth certificate (50 pts.), birth certificate (50 pts), medicard (40 pts.), or other government-issued IDs that would bring up the points.
- 2 years of residential history. If you happen to be in the country temporarily on a work visa, speak to any of our financial consultants to guide you on what to do.
- Proof of income or your last 2 payslips. If self-employed, your last 2 tax returns will do.
- Assets and liabilities. Proof of other properties like home, other vehicles, cash savings or other investments like market shares. Liabilities are other debts you make repayments to.
- Car insurance policy. A certificate of insurance with at least 12 months’ coverage upon settling the loan.
- Tax invoice. Your car’s chassis or vehicle identification number (VIN), new rego and agreed purchase price appearing on the tax invoice.
Keep in mind that this is merely a guide as requirements may vary since not all car loan applicant’s situations are the same.
What to do if you have a bad credit history?
You may be unsure of getting a car loan if you feel that your credit history is not where you want it to be. If so, you are not alone. In fact, the Australian Securities and Investments Commission (ASIC) reports that as of June 2017, 18.5% of Australian consumers are struggling with credit card debts. [credit card] That’s one in six Aussies.
If you happen to be one of these numbers, you might be doubtful if you can have a car loan approved. Fortunately, many lenders are willing to lend money to individuals with low credit rating. However, their interest rates could be greater for sub-prime borrowers because of the higher risks involved.
You can try to improve your credit score by asking your credit card provider to lower your credit limit or by consolidating multiple loans (among other attempts) but those things take time. You can also consult a financial expert who could do a more comprehensive assessment of your credit history and credit behaviour. Savvy’s team of financial experts can compare rates across a multitude of lenders to aid you in making informed decisions before lodging an application. This way, your odds at possibly getting a second chance on a car loan approval is boosted.
Getting pre approved for a car loan
Car loan pre-approvals are a great way to test the waters before lodging a car loan application since it gives you an idea of how much you can possibly spend on a car. A pre-approval gives you a better insight on your possible price range even before heading to the car dealer or clicking on a button online. This prevents you from spending on a car that you may not be able to afford and that’s one less thing to worry about in the car buying process. You also gain more confidence if the car you’ve been eyeing on happens to be within your budget.
Getting a pre-approval does not necessarily mean you have an obligation to the lender to borrow that amount. You have 1 to 3 months to decide if you should push through with a car loan application.
If you’re curious and want to know how much you could ask to borrow, you can get a free pre-approval with Savvy under no obligations.
Getting your car finance organised
There are several ways to choose from in getting your car financed. The common route people take is going to their bank simply because it seems easier that way. While this appears simple, using your bank as a car loan financer has heaps of setbacks, and being faithful to them does not assure you of the best possible interest rates.
If you happen to have a minor slip on credit card repayments, were overdrawn, etc., they would be easily spotted and may dampen your probability to get a car loan. Banks may not even offer loans at all due to bad credit history as part of their strict lending criterion. On a general note, banks will tend to have higher interest rates and may only cover vehicles not older than 15 years.
It is crucial not to limit your available options. You can go to car dealers, however, they a handful of lenders and earn a commission from them on top of the earnings they get from you as a buyer. This means your bargaining power could be reduced as they may lean more towards their teammate. Dealers may also offer you an enticing 0% interest, but this may eventually cost you more due to additional charges and fees. Make sure you understand the terms and conditions and read the fine print before signing up.
You should also check if the car dealer you’re dealing with is compliant and no longer service their deals with flex commission. Flex commission used to allow car dealers to bump up their interest rate and are paid by the lenders to the car dealers or finance brokers. On September 2017, the Australian Securities and Investments Commission (ASIC) has banned this practice.
Finance brokers on the other hand, will have a more holistic approach to your car loan application. A broker that has the knowledge, technology and flexibility will have a more thorough approach to understanding your credit history and determine the best possible recommendations that are tailor fitted to your unique situation.
How do bank car loans work?
Car loans from banks are mostly secured loans. This means they use the car you want to buy as collateral for the loan in case you default on the repayments. Secured loans offer lower interest rates than unsecured as a rule.
When assessing a secured loan application, bank lenders consider the state of the car as well as the reliability of the loan applicant. For a car that is brand new or only a few years’ old and in good condition, you should be able to get a cheaper interest rate. However, banks will also at times offer secured loans for cars up to ten years’ old – although the rates will likely be higher than for younger vehicles.
This also means that in some cases of buying a very old used vehicle, you may not be eligible for a secured car loan. Another option in this situation is to apply for an unsecured personal loan.
Car loans from banks may be either fixed rate, where the interest rate and repayments remain the same, or variable rate. While variable rate loans allow you to take advantage of falling interest rates, you also need to consider that interest rates could rise, which would in turn increase your repayments.
How much can I borrow from a bank to buy a car?
Car loans from banks are likely to range from around $10,000 to $100,000. How much the bank will lend to you however depends on your situation.
If the bank lender considers your income to be too low or your expenses too high to meet the repayments, your application could be rejected. In this case, you may need to reduce some of your expenses, apply for a smaller loan, or shop around for a cheaper car.
Additionally, if you can save for a deposit on a car, it will reduce the amount you will need to borrow from your bank.
What should I look at when comparing bank car loans?
It could be easy to simply focus on interest rates when comparing bank car loans. However, there’s more to it.
For instance, for interest rates you should always check the ‘comparison rate’ rather than the advertised one. This is because comparison rates include most standard fees and provide a truer picture. You should also look at the product features to see if there are other fees involved, such as early exit fees, or additional fees for making extra repayments.
In addition, you should draw up a budget to see how much you can afford. For this you should factor in not only your income and current expenses, but also the costs involved in running a car. This includes fuel, registration, insurance, roadside assistance, servicing and maintenance.
A car loan calculator is a great tool for working out repayments. To use it you simply need to fill in the fields to quickly arrive at a result. It also allows you to test out various scenarios before approaching lenders.
For example, let’s say you want to borrow $25,000 over 7 years, and you’ve seen a comparison rate of 6.5%. Entering these variables into the boxes brings up monthly repayments of $371.24.
What our customers say about their finance experience
Savvy is rated 4.8 for customer satisfaction by 3225 customers.
