How To Avoid Shylock

Shylock, for those of you who aren’t familiar with Shakespeare’s play The Merchant of Venice, was a moneylender who charges one of the main characters (Antonio, the merchant of the title) in the drama one of the most outrageous penalties for defaulting on a loan: the terms of the loan which was voluntarily signed and agreed to by Antonio  allowed Shylock to cut a pound of flesh off Antonio… without anaesthetics, which hadn’t been invented when Shakespeare was writing, unless you count very strong alcohol or opium. And you can guess what happens: Antonio defaults on the loan when he gets the news that one of his trading ships has been wrecked at sea, and Shylock hauls him into court with a knife ready to do the business, and it takes some very cunning legal work by Portia, the heroine of the play who disguises herself as a man so she can act as a lawyer, to get Antonio off the hook.

Shylock was the Renaissance version of a loan-shark: someone who charges a very high rate of interest so people with bad credit ratings can take out a loan. Loan sharks  although you won’t hear them advertising themselves this way  are now more common and more acceptable to society than they used to be (only just). In Shakespeare’s day and before that, the practice of charging very high interest rates was known as usury and it was considered to be among the most atrocious of moral crimes. Dante, who wrote before Shakespeare, in his classic Inferno, put usurers (we’d call them loan sharks) in the seventh circle of Hell at the same moral level as murderers and perverts.

And if you’ve ever talked to anyone who has taken out a loan with a loan shark, you’ll understand why society in days gone by cast them as villains. Some people who have failed to read the fine print and/or have felt so desperate that they’ve taken out a loan from one of these unscrupulous lenders would agree completely  and are likely to consider hacking off half a kilo of muscle to be a better situation than watching their family suffer in an attempt to pay the loan off.

You should always be suspicious about people or companies who offer loans on very easy terms. It is highly likely that there will be exorbitant hidden charges and/or penalties. These people are often considered by people who haven’t got a stellar credit history. How can you avoid Shylocks but still get the money you need to buy a set of wheels (so you can get to your job so you can earn the money to pay off the loan and still have something left over to live on)? Is there a way?

The first thing to do is to look at your credit history carefully. Sometimes, the printouts can be wrong or out of date. A debt may be in dispute or you may have already paid it off, and this isn’t shown on the bit of paper. If you can sort this out and clarify what’s going on, then you may be able to clear your name on the credit front.

The next thing you can try doing if you do have outstanding debts or unpaid bills that are damaging your credit rating is to do what you can to pay them off. This may mean that you have to trim your lifestyle back a bit  cut that credit card up if you find that you can’t help yourself running up big bills with it!

If the problem is well and truly in the past  perhaps the bad rating is a legacy of being young and stupid many years ago  then having the paperwork, such as bank statements and budgets can be used to show lenders that you have learned how to manage your money properly and you are unlikely to default on a loan again. Another possibility is to save up and have a large deposit handy, which not only means that you’re borrowing less but also shows the lender that you’re able to save money.

And, most obvious of all, try applying to a different lender. If you’ve always gone to the same lending organisation and they know that you have a tendency to get yourself into problems, then a new lender might be more favourable towards you, especially if you take some of the other steps listed above. Talk to us and we’ll help you find a new lender that suits your situation  and we’ll help you with the fine print so you don’t end up paying a pound of flesh.

More borrowing and lending terms for absolute beginners

In the last post, we introduced beginners to the world of car finance to a few of the terms that get used when you start looking for a loan to buy your car. After all, those who are looking for their first car are quite likely to need a loan to purchase that car usually so they can go to work to earn the money that will be needed to pay off the car (and hopefully have a bit left over to pay for other expenses). Here’s a few more borrowing and lending terms explained for those new to the process (Those who know how it works but need a loan to get a new car because their old one has blown up can skip this post and get on with the job of applying for a loan and finding a new car.)

Loan Calculator: These are handy little gadgets provided by many lending companies to help you work out whether you can pay off the loan comfortably or not. It’s a sort of budgeting tool, and it takes the number-crunching burden off your back just in case you can’t remember how compound interest works even though you know you had to calculate it in class, or if you’ve handed that scientific calculator you used for doing these sums to your little sister. With a loan calculator, you can work out what the repayments will be like (and therefore whether you can manage them) with various interest rates, terms (see below for a definition of this) and amounts to be borrowed. You can get started by trying out our loan calculator here.

Deposit: This is the amount you pay up front towards the cost of the car. If you read the last post about interest rates, you probably have realised that the more you can pay towards the car outright at the start, the better, as this will mean that you pay less interest, because you won’t have to borrow as much. The exact amount that you need for a deposit varies. Some lending companies will approve your loan with no deposit or only a tiny deposit, while other companies prefer you to pay a bit more up front. Naturally, this will affect the interest rates they will offer you, so be aware.

Term: Term refers to how long you will be paying off the loan and the interest the amount of time it will take until it’s all settled and the car is 100% yours. The term is usually something that can be negotiated with the finance company, but the general rule of thumb is the longer the term, the lower the monthly repayments. However, with a longer term, you will also pay more interest overall, so it’s a juggling act. A short term, less interest and a large monthly repayment? Or a longer term, more interest and more manageable monthly repayments? It will really depend on your circumstances. Also be aware that most car finance companies won’t accept terms longer than ten years, given the way that cars deteriorate and lose their value over time.

Repayments: This is the amount that you will be forking out every month or every fortnight. How often you want to make the repayments is something you will have to negotiate with the finance company, but most companies are usually OK with either monthly or fortnightly repayments. You could try doing weekly repayments, but this will depend on your budget and how you get paid. Regarding repayments, one thing that it pays to ask when you’re applying for the loan is whether you can make additional payments on top of the regular repayment amount so you can pay the loan off sooner, and whether there’s any fee for early repayments.

If you have any other questions about loans and car finance, don’t hesitate to ask us. It’s important that you understand what you’re letting yourself in for when you take out a loan, so don’t feel like a twit if you ask questions. That’s one of the things we’re here for.

Borrowing and lending terms for absolute beginners

Some of the people who use our services to find a good car loan aren’t old hands at the game of borrowing and lending. For many people, leaving school and getting a job is often what triggers the need for a car you need to get to work, don’t you, especially if that job is in a place or time that just doesn’t work for the other El Cheapo options such as walking, bussing, carpooling or biking. And unless you can get a bit of dough off Mum and Dad, you’re probably going to have to borrow some money so you can buy a car (or a motorbike another worthy option that’s a bit more frugal on petrol and is a good way to get about for those who don’t have to cart a family around) so you can get to work to earn some money which you will need for paying back what you borrowed to get the vehicle.

However, if you’re new to the world of borrowing and loans, some of the terms might be a bit unfamiliar. This glossary might help you start off and might also help you avoid a few traps for the unwary beginner.

Principal: The principal is the amount that you’re borrowing. This is usually the price of the car, but it pays to ask a few questions just in case there are a few extra charges here and there often, there’s an administration or application fee associated with applying for the loan (the employees of lending companies have to eat…).

Compound interest: Compound interest is not just something you have to calculate in maths class. In case you were asleep during that class and just went through the motions, compound interest works like this. Just say that you borrow $1000 at an interest rate of 10% per annum (per annum = per year). The interest calculated the first time round will be $100, which is 10% of $1000. The next time that the interest is calculated, it will be 10% of ($1000 + $100 = $1100), which is $110. This assumes, of course, that you haven’t made any repayments. Generally when the interest at Time B is calculated, it will be 10% of principal + interest calculated at Time A any repayments. It doesn’t take a maths whizz to work out that the amount you have to pay back keeps growing and growing, so the more repayments you make and the quicker you pay back your loan, the less you will pay in the long run.

Bailiff: This is something you want to avoid. If you don’t manage to make your repayments, the inevitable will happen. Remember how annoyed you got when someone borrowed your favourite CD but never gave it back? Well, this is how the loan companies get when you don’t pay them back the money you borrowed to buy that car. And they will send someone to get that vehicle off you, as it was paid for with their money, after all. This person is the bailiff. The car will probably be sold by them and this money will go towards what you owe them. You still might have to keep making payments, too, and your credit history (like a report card on what you’re like when it comes to paying back loans) will have a black mark against it, meaning it will be harder for you to borrow money a second time again. DON’T GO THERE! (If you have had problems in the past, don’t despair and feel like you’re condemned to riding the bus for the rest of your life talk to us, as we might be able to find something that will work for you.)

Of course, these are just a few of the terms that you need to know when you’re taking out a loan for a vehicle of any description. More in the next post!

Top Tips To Remember When You Apply For A Car Loan

1. Be realistic when you choose your vehicle. While you might be able to get a loan for that very nippy brand new little red sports car you’ve always dreamed of, if you are buying first car or a family car, it’s best to be realistic and rein in your dreams. A little red convertible is not very practical as a family vehicle, and if this is your first car (and you’re on your first job), you’d probably be better off with something small, economical and probably second-hand. However, if you’re hunting for a second car for fun, then you can indulge your dreams a little.
2. The more you can pay upfront, the less you have to borrow and the less interest you will have to pay. Deals when you only have to pay $1 deposit or even no deposit look very attractive, but you will end up paying more in the long run. Saving up a little before you buy a car is wise for this reason and for another reason: if you have to wait a bit, you are less likely to be impulsive and get the wrong vehicle for your needs on a whim.
3. Plan your budget: before you sign on the dotted line for a car loan, make sure that you will be able to meet the monthly repayments. For many people, this may be the first time they actually set a budget. Don’t forget to leave a cushion just in case an emergency happens, and also make room in your budget for a little mad money.
4. Larger payments over a shorter period or smaller payments over a longer period? A shorter term for the loan means that you pay less interest, but your budget will be committed more heavily with less room to move. However, lower payments over a longer term may be more easily fitted into an existing budget, especially if you’re forced into buying a new car (which could mean new second hand) because your family wheels died dramatically with no hope of repair and you’re going to have to get to work somehow.
5. Ask if you are able to make additional payments on top of your regular repayments so you can pay your loan off more quickly. Some finance companies allow you to do this without any penalty; others have an early repayment fee. If the company that offers the best deal does charge an early payment fee, do the maths is the fee lower than the interest you would have otherwise paid? If being able to make additional repayments without incurring a penalty is important to you, let us know so we can find you a finance company and/or deal that permits this BEFORE you sign anything.
6. Don’t just buy the first car you see that fits your requirements. Shop around, do your research and do your homework. Consider all aspects of your purchase thoroughly, including fuel type and engine size, as well as the number of seats and the size of the car. Also think about what happens when repairs become necessary: how easy is it to get parts?

Finance Specials

There could well be a few of you out there that don’t realise that Renault, that great French brand that has never quite made it here, are the owners of a very large slice of Nissan Motor Company.

So we see at the moment both Nissan and Renault marketing some very aggressive finance rates.

With Renault, you can get a 2.9% Interest Rate on the Megane, the new Latitude Sedan and the Fluence Sedan and a 3.9% Interest Rate on the commercial range, namely the Kangoo, Trafic and Master vans.

With Nissan, they are offering a 1.9% Interest Rate on the new Micra.

On top of these they are offering free servicing and a 5 year warranty on some models which all seems quite compelling.

However, as with all of these special offers there is small print, which you must read. Both are restricted to 36 month terms and it is interesting that the comparison rate referred to in the advertising relates to a 60 month contract for $30,000, when the Micra costs half of this amount! So, go figure!

As with all of these deals, whilst on the face of it they may seem attractive, it is always best to try and compare apples with apples. You may find that the rate is only available for the car if you pay the full ticket price for the car. Whereas you may be able to negotiate a discount and then finance the vehicle at normal rates and end up better off.

There is no doubt that for some people, these are well worth considering but we would recommend that you do your homework first and don’t get drawn in by some slick salesperson’s spiel.