Are you looking to replace your motorbike with a sedan or SUV? Do you need a car for your daily commute? If the answer is yes, then you are in luck. With a market swamped with manufacturers and showrooms offering endless options, buying a new vehicle is not a mammoth task anymore. With a premium deal on car finance rates, you can easily drive away in the machine of your dreams.
Apart from researching brands, models, and mileage factors, you should also consider another important aspect — car finance options. But first up is your car loan eligibility. So, what factors constitute this?
Car Loan Eligibility & Various Factors That Affect It
Even for a layman, the first consideration — your credit history — is clear. You need to have a good credit score in order to secure a prime deal. Apart from this, there are several other factors that banks use to determine your loan eligibility.
- Income: most of the lenders would prefer that your monthly debts are less than 43% of your income
- Proof of employment: banks and lenders prefer someone with a steady job or stable income
- Repayment record: lenders might get a bit alarmed if you have any unpaid debts or late payments
- Equated monthly instalment: this is your total monthly instalment that you would pay to settle your loan within a fixed tenure. Along with the other factors, it shall inform you and your lender if you are eligible to settle your debts
Car Finance Rates
The second most important factor is car finance rate. A prime rate can enable you to secure the best deal on any new or used car loan.
Keeping your eligibility in mind, compare different interest rate options offered by various banks. You can also compare between various interest rate options such as fixed and variable rates. Even the type of car loan determines your finance rate -- for e.g., a secured car loan usually offers a lower rate than an unsecured one.
Measures That Can Lower Car Finance Rates
Everyone wants a low interest rate on their loan. You could get it too. Just keep in mind the following:
1. Multiple Lenders
Always approach multiple lenders. Get in touch with your bank along with other banks and credit unions or brokers. Get an idea about different types of financing.
Now if you have a bad credit history, this step is even more important. Certain lenders do have options for poor credit scores -- that can offer competitive rates. The best way to land a good offer is to shop around a bit and arrive at a decision.
A good option is a car finance broker. This independent financial mediator has access to an extensive list of lenders. With a wide range of loan types that meets specific needs of the borrower, a broker can curate a financing option that suits you just right.
A segmentation of the Australian automotive industry by market share of various lenders reflects the following results:
You can approach any lender from the above options, depending on their criteria for loan approval and your own circumstances.
2. Strict Timeline
When you apply to different lenders, it’s better to fill out all loan applications within a specified time frame. This way, your credit score doesn’t get affected. Let me explain. Loan enquiries are termed hard enquiries and they negatively affect your credit score, especially when you do multiple rate shopping. But if you seek all that information during a particular period of time, credit bureaus understand that you are actually looking for a good rate rather than applying for multiple loans. Get the drift? You can read up on this here.
3. Careful Evaluation
Go through the finance offer in detail — especially the sections pertaining to interest rate and car loan term. Choose shorter terms. Why? Any vehicle loan with a longer period increases the chances of you owing more than the car’s worth — an outcome of depreciation.
4. Fine Print
An important point to remember: a careful scrutiny will let you know of any possible hidden costs in the loan. For instance, loan application fees are charged to process the application; this could include costs involved in checking your credit scores or handling administrative functions. Since these fees are usually standard across the lending industry, you must be careful while paying additional charges. Some loans also come with a prepayment penalty; i.e, you need to pay a fee if you settle your loan before the end of its complete term. It is generally mentioned in the agreement and that is why you must read the fine print carefully prior to signing it.
5. Pre-approval Edge
Always go with a pre-approved financing option when you visit a dealership. You may take up their offer, but an alternative gives you an edge on the negotiation table.
If a dealer offers a good price, he may quote a higher interest rate to increase his profits. But a pre-approved loan option lets you bypass this and focus on other aspects of buying. You might not have got the best rate in your pre-approved deal, but you can now concentrate on going only for lower rates through comparison.
When you are offered a higher interest rate or a longer term than your pre-approved loan, you can negotiate with the dealer to see if he can match up to it or give you a better deal.
My advice would be: always do your research to land a competitive rate. Know your eligibility and approach lenders accordingly. Close your deal after tying up all loose ends.
Whenever in doubt, it is always recommended to seek counsel from your accountant.