Everyone starts off somewhere, none of us are born experts in life, let alone when it comes to something like finance. With this in mind, we’re taking the opportunity to introduce beginners to the world of car finance by explaining a few of the terms that get used when you start looking for a loan to buy your car. Here are a few borrowing and lending terms explained.
These are handy tools provided by many lenders to help you work out whether you can pay off the loan comfortably or not.
It’s a sort of budgeting tool, and it reduces the burden of crunching numbers and working out matters like compound interest.
With a loan calculator, you can work out what the repayments will be like, including your ability to service the loan based on various interest rates, terms and amounts to be borrowed.
This is the amount you pay up-front towards the cost of the car.
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 refers to how long you will be paying off the loan and the interest. In other words, it is 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 financier, 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?
The answer to the above proposition will really depend on your circumstances. Also be aware that most car finance companies won’t accept terms longer than ten years due to the rapid depreciation of the car.
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.
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. Furthermore, you’ll want to know whether there are any fees for early repayments.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.