Over the past two years, used car prices have surged, with some categories seeing increases of as much as 37%. So, what do you do if you still really need to buy a car, but also want to save money?
While negotiating on the price of the car provides an obvious way to keep your outgoings as low as possible, it’s also worth considering how you could save on your car loan before you buy.
In this post, we’ll look at the various ways you can save on your car loan, to make the process of buying a car in this post-pandemic world as painless as it can be.
How much you pay out on your car loan will vary widely according to the loan you choose, the lender you go with, and the features you decide to take up. First understanding all your options – and then comparing them – should allow you to not only choose the most suitable car loan, but also get the very best deal.
As a general rule of thumb, opting for dealer finance will usually cost you more on your loan as you pay it back over time.
Why? Many car buyers see dealer finance as the easy option, picking up finance from the dealer at the same time they pick up their car. However, as dealers know car buyers may be keen to simply go with whatever they offer, they may not always provide the lowest cost option. At the same time, dealers may be somewhat pushy about selling you that finance to earn themselves commission.
Comparing car loans online before you buy a car – whether at a dealer or privately – can help you understand your options, to then apply for the best car loan for you.
Choose Your Term
Looking at paying more than you’d want to on a car? It may be tempting to make that purchase more affordable by paying it off over a longer loan term.
However, that may not be a good idea. Paying off a loan over a longer term will usually mean you pay back more in interest and fees. Plus, you will be in debt for longer, which could make it harder to get approved for other credit later down the line.
Let’s look at an example.
Kaitlyn applies for a $25,000 car loan, featuring a fixed rate of 8% p.a. While the loan doesn’t have an establishment fee, it does charge an ongoing administration fee of $10 per month.
Opting for a three year loan, Kaitlyn pays back $793 per month. Overall, she pays $3,563 in interest and fees.
Opting for a five year loan, Kaitlyn’s monthly repayments would be $517. However, she would pay almost double the amount in interest and fees, at a total of $6,015.
Put Down a Deposit
Another way to reduce the amount you pay in interest is to put down a deposit when you buy the car.
Let’s say Kaitlyn puts down a deposit of $5,000, reducing her loan amount to $20,000.
On a three year loan, her monthly repayments would be considerably lower at $637, while overall, she would pay $2,922 in interest and fees.
While applying for a car loan with more features – such as the ability to make extra repayments and access redraw on the loan – can make the loan more expensive initially, choosing this type of loan could help you save over the long term.
How? As long as the loan doesn’t charge a fee to make extra repayments or pay off the loan early, you could work on paying down your loan faster, helping you save on interest and fees.
Hybrid and electric cars continue to increase in popularity here in Australia. As a result, many car loan providers now offer incentives to car buyers looking to go green.
If you opt for a hybrid or electric car, you may enjoy significant savings on the interest and fees you pay on your car loan, simply by choosing the right green car loan option.
Improve Your Credit
One last way you can save on your car loan? Before you apply, check your credit.
As car loan providers determine rates partly based on the risk of lending to each particular borrower, borrowers with a lower credit score usually end up paying higher interest rates.
On the other hand, borrowers with a higher credit score tend to be deemed lower risk, which means they get lower rates on their loan.
So, if your credit isn’t looking that great, it could be a good idea to work on improving your credit before you buy a car.
Want to know more about how to get the best deal on a car loan? Car Loan World is here to help! Just tell us a little bit about yourself and what you want from your car loan, and we will compare loan options to help you find the best fit.