The used car market in Australia is estimated to be approximately over three million units a year. According to recent research, even the annual growth rate in used vehicles wholesaling has been reported to be more than five percent per annum in the last five years. With such a boom, numerous banks and financing firms are advancing loans to purchase pre-owned vehicles. Wish to know more about whether you should go for a second-hand purchase? Read our blog here.
A used car loan however comes with some major drawbacks. Banks usually offer 70-80 % of the cost for a used car in comparison to 90 % for a new car. Even the interest rates are generally higher and loan terms shorter for the former. Therefore, in the following post, we shall try to guide a prospective buyer on how to avail the best used car loan interest rate for an extended tenure.
How To Proceed With Your Application For A Used Car Loan?
Our best recommendation would be to finalise your loan type and its requirements prior to applying for any financing option. If you follow the steps below, your worries can be put to rest.
Decide on the car model and type
Settle on a model and type that suits all your requirements and still fits your budget. Since most car financers take into account the age and model type, going for a comparatively new vehicle will enable you in securing a better rate on your used car loan.
Calculate the total amount you need to pay
Ressearch available option
There are several banks and finance firms that advance used car loans in Australia, irrespective of whether you are buying from a dealership or a private seller. Do proper research and groundwork by comparing various options so that you can select the best loan deal – tailored according to your situation and specifications.
Keep track of documents required for verification
Keep track of documents required for verificationYes, you will be required to present documented proofs that verify your income stability. These usually include identity, residence, age, and salary proof along with bank statements. Since the complete list varies from bank to bank, settle on a lender whose demands match with documents available with you.
What Are Your Funding Options For A Used Car?
Now that you know how to proceed with your application for a used car loan, we shall brief you on various funding options.
Yes, this is pretty obvious. You can pay the complete amount from your pocket if you are able to do so. A risk-free, easy, and quick solution. But since buyers normally do not possess such huge amounts of cash, a bank loan is definitely the second choice.
Now when we say bank loan, the first term that strikes you will be a car loan. Well, wait. We do have another option for you – a personal loan. Before deciding on which loan to go for, here is a gist of two alternatives:
A personal loan is an unsecured loan with a lower down payment – that can be availed up to 100% of the entire car cost. The fast and easy process for securing the loan also requires minimum documentation. However, it does come with the downside of higher interest rates.
On the other hand, a used car loan offers you only up to 90% of the total vehicle cost. This results in a higher down payment. However, on the positive side, this secured loan offers you lower interest rates as compared to a personal loan. A car loan also comes with the advantage of varied repayment options such as a balloon payment. Want to know more about this term? Read our blog in this link.
If your car value is more, you can go for a personal loan. Whereas, if you are considering on saving money and have a poor credit history, then a used car loan is a better option for you. To get a detailed idea on the various aspects of car loan vs personal loan, please read our detailed blog here.
What Are The Mistakes You Can Avoid While Availing A Used Car Loan?
Going for longer loan terms and focusing only on monthly repayments
A longer loan term means lower monthly instalments. But the major point which borrowers overlook here is that they end up paying more interest than is necessary. Therefore, choose the shortest possible term that fits your budget to minimise your amount paid as interest. To gain further insight on aspects such as hidden interests, read our blog here.
Avoiding down payment
It is really lucrative when you get home a car without spending a single penny upfront. But this ‘pay less now, but more later’ deal results in higher monthly payments and interest amount. Moreover, borrowers generally miss out on concealed charges and fees that are included in the zero down payment option.
Decide with your mind
Yes, the compulsion to stretch a bit beyond your budget may seem very tempting at first. But this heart-over-mind decision may cause you unnecessary stress in the future. Failure to pay the monthly instalment shall result in lowering your credit score, adding penalty charges on late payments and marking you as a risky borrower. Hence, stick to your budget and live a financially healthy life.
The Bottom Line
For a first-time applicant, the entire groundwork for arriving at the best used car loan can be a strenuous and confusing process indeed. But proper research will at least give you an idea on what a good deal looks like. Even though a lot of jargons will be thrown at you, make sure you take your time to understand each of the terms and conditions; go through everything and read the fine print before signing on the loan agreement.