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A straight talking guide to Car Loans
My car loan story
Over a year ago we were in the position where we desperately needed a new car, well a newer model than we had. All the money we had spent on maintaining and running our previous car had become almost double the weekly repayments a new car would cost to obtain on loan.
New car vs. Used Car
We chose this way as cars almost lose half their value when they leave the factory floor. We didn’t have the money up front to accept that loss.
The car we chose was 3 years old, with less than 60,000kms on the clock. A perfect service history and tidy interior. I was almost brand new.
New cars have glitches that need ironing out and not much is known about those issues. Factory warranty is good, however you need to prove it is a factory fault.
My Experience with Car Loans
We went to the used car dealer, after checking out the website. My husband found the car as mentioned above, and thought it was too good to be true however He wanted to see to be sure. We organized a time to go down, have a test drive and look at the car. We looked at another car too.
We ended up seeing the finance people and accepting the 3 year old car. The repayments were less than I had worked out we could afford in the budget and this was fantastic. So I didn’t look very hard at the fine print or the fees and charges. We chose to pay weekly, as this assists in lowering the amount of interest you pay. I didn’t check out the fees and terms as I usually do. After all it was less than I had budgeted.
About 6 months after that we needed yet another car. Our circumstances had changed and I was driving 3750 kilometers’ per month and the car that my husband drove did nearly the same amount of kilometers, even after all the time and money spent fixing it was starting to show signs of unreliability.
It took us longer to find the next car. However we found one in another state with less than 30,000km on the odometer. Another too good to be true car. My husband spent hours talking with the dealer. He decided to go up and purchase the car, based on seeing and driving.
Again he signed up with the dealer recommended finance company.
I was talking with somebody about the car loan and informed that we were paying around 15% for our secured car loan. A secured car loan is when they will take the car, if you default on enough payments. Unsecured car loans, generally for cars that have little resell value, have a higher percentage. On top of the 15% percent, they were also charging a $3.00 account keeping fee, every time I paid them money.
I ended up discovering that I could get a loan for around 9-10%. With no penalties for paying my loan. Which would mean that if I kept my repayments as I could afford; as was already budgeted - I would pay of the cars quicker. I started researching and found a loan company with low interest rates, completed all the paperwork. Which was rather difficult as the car loan companies we were originally with would only issue a payout figure with a one day expiration.
Once it was all sorted, I called the insurance company to inform them of the change in financier, and was informed I would get money back from my insurance premiums.
Dumbfounded, I asked why? As I had never considered that who I got the loan with would affect my insurance premiums.
The insurance company informed me that the financiers I had been with were considered high risk, those finance companies were big brand names. The company I swapped to was a small credit union, but it ranked as less risk. This didn't make sense to me, although I thanked her for the surprise money.
I guess its just some of the things I had never considered when looking for a car loan, and getting the loan at the car yard is incredibly convenient, although it was costing us so much more than had we taken the time to research.
Researching car loans – Fees and Charges
As with any loan, I know that when I went for my home loan, I read the fees and charges pages as well as the interest rate. Even with researching a bank account, credit card – know the hidden fees and charges.
What’s the point in paying less interest if you have – statement fees $15.00 per quarter. Account managing fees of $3.00 every time you pay the loan. And a host of other fees and charges that are written somewhere but not advertised. I’d say there is little point and won't pay off the loan as efficiently as possible.
Know exactly what the fees will be as these are taken in to account in the Comparison Rate, but when you look at that, it only one or two percent higher you may not care as much as you should, as your repayment is generally only based on the actual interest rate.
Now both my loans have comparison rates that are almost on par with each other. I know how to avoid the fees and charges.
As all loans have a fee for late payment – I set up direct debit, or direct payment from my account. I check my bank frequently to ensure all the payments are going through and there is enough money in my bank account.
Car Loan Definitions
Abbasangel's understanding of a secured car loan: They are going to take the car if you miss to many repayments, however this will make your interest rate lower and expect you to keep paying for it!
Abbasangels' understanding of a unsecured car loan: The car isn't worth enough to take so they will make you pay for a cheaper car with a high interest rate.
Abbasangel's understanding of interest: interest on a car loan is higher than a mortgage, less than a credit card, sometimes around the same interest rate. I believe this to be that cars, a riskier loan for companies to provide as they can be involved in accidents, stolen or maybe it is just that not many people take out a $200,000 loan for the latest Ferrari.
Abbasangel's understanding of fees: There are start up fees that are unavoidable, otherwise these should be avoided at all costs, by paying on time, try to get one without account keeping fees. The only other fee you should be happy to pay is a "ending the contract early" if it will save you more interest than the fee itself.