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.
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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