There are a number of factors that can affect the car loan you end up with, such as the age of your car, your credit rating, and whether you choose a fixed or variable rate loan, or a secured or unsecured loan. Understanding what those factors are and how they affect your loan can help you to make the right decision when comparing loans.
Whether you buy a new or used car
New car loans, as you would expect, are designed to finance the purchase of new cars. However, new car loans don’t just cover brand new cars, they can cover cars up to two years old, with a certain number of kilometres on the clock.
Used car loans are designed to finance the purchase of used cars, usually for cars aged between two and five years. Used car loans are available for cars more than five years old, but various stipulations may apply.
New car loans usually attract lower rates of interest than used car loans, as they are considered lower risk. If the borrower is not able to pay back the loan for whatever reason, the lender is more likely to be able to sell the car and make its money back on the unpaid loan if the car is newer.
Whether you choose a secured or unsecured loan
Secured and unsecured car loans also attract different interest rates. Lenders offering secured loans have the car as collateral, so if the lender is unable to repay the loan, the lender can sell the car to make back its losses.
An unsecured loan doesn’t have that kind of security, which is why secured loans are usually easier to get approved for, and generally offer lower interest rates.
Whether you choose a fixed rate or variable loan
With a fixed rate car finance, the interest you pay is fixed for the length of the loan. That means your repayments will always remain the same, making it easier to budget. With a variable rate car loan, the interest varies according to the lender. This can allow you to save money on interest if rates fall, but it means you will pay more if rates increase.
Whether you choose dealer finance
Many car buyers choose dealer finance because it’s the easy option. With dealer finance on the table, some car buyers choose to take it up because comparing and finding other car loan options is too much hassle.
However, dealer finance is not always that competitive. Some dealers add commission to their finance, which means borrowers pay more than they would elsewhere. If you want to get the best deal on your car finance, always compare all your options before you sign.
Your credit rating
One of the most important factors affecting your loan is your credit rating. When you apply for a car loan, the lender will usually check your credit file to assess the risk of lending to you. If your credit history is good, with no missed payments or defaults, the lender will be more likely to approve your loan and offer you lower interest rates.
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