Getting a loan is a good option if you can't afford to buy a new car outright or if you don't want to use up your savings. Consider this the roadmap you need to read before u loan.

What is a new car loan?

A new car loan is a type of loan specifically designed for financing the purchase of a brand-new vehicle. You borrow the funds you need to purchase the vehicle from a lender or a bank. You then pay back the funds in regular instalments, over an agreed period, paying an agreed interest rate.

  • Interest rates – Pay close attention to the interest rates on offer. Lower interest rates can save you a bundle in the long run.
  • Loan term – Choose a loan term that matches your budget and financial goals. Shorter terms usually mean higher monthly payments but less interest paid overall.
  • Down payment – Decide whether you want to make a down payment on the car upfront. A larger down payment can reduce your loan amount and monthly payments.
  • Ongoing costs of owning a car – Your loan repayments include the vehicle's purchase price plus interest, but you also need to consider other running costs. Fuel, insurance, registration, servicing and maintenance are all significant costs.

To find the best new car loan, consider the following:

  • Know your credit – Start by checking your credit score. A strong credit profile can help you snag the best loan terms.
  • Check your budget – Make sure the loan fits comfortably within your budget. Ensure you can comfortably make your monthly payments plus ongoing running costs without straining your finances.
  • Get pre-approved – Research loans first to find one that fits your situation, and meets your budget. You can even get pre-approved for a loan before you start shopping.
  • Engage a broker – A broker can help you by doing some of the legwork and removing some of the stress of finding a loan. They compare new car loans and interest rates from multiple lenders and help you understand the terms and conditions of the loan. This approach can save you considerable time and money.

What are balloon payments?

Balloon payments are substantial, final payments required for some car loans. Balloon payments can reduce your regular weekly, fortnightly or monthly payments. However, you must then pay a significant lump sum (usually between 20–50%) when your loan term ends.

Things to be aware of before you choose a loan with a balloon payment:

  • unsecured loans with balloon payments can have a higher interest rate
  • paying a lump sum can be financially difficult unless you are prepared

Talk to your broker to help you determine whether a balloon payment is suitable for you.

What are extra payments?

Extra payments are additional payments made on your car loan, beyond the required monthly instalments. Extra payments can help you pay off your loan quicker, but some loans penalise you for doing this. Talk to your broker about your loan, and whether making extra payments will work in your favour.

Is a fixed or variable rate car loan better?

Fixed-rate loans offer stable and predictable payments, while variable-rate loans can change over time. Whether you should choose a fixed or variable rate is a matter of personal choice which depends on your risk tolerance and financial goals.

What is a novated lease?

A novated lease allows you to lease a car using pre-tax income, often through your employer. This can be a great way to maximise tax benefits and enjoy a brand-new car.

What fees should I be aware of?

  • Establishment fees – These are fees for setting up the loan.
  • Ongoing fees – Some lenders may charge monthly or annual fees to maintain the loan.
  • Early repayment penalties – Understand any penalties for paying off the loan before the agreed-upon term.

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