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So, you’re thinking about getting a car loan? Maybe you’re eyeing a shiny new ride or a reliable used car that won’t leave you stranded on the highway. Either way, getting a car loan is a big financial step, and it’s worth doing it right from the start. A little preparation can save you thousands in interest, keep your repayments manageable, and help you avoid nasty surprises down the road.
Let’s break it down: the best practices, the common dangers, and a few cheeky hacks to make sure you get the best deal possible.
Best Practices for Getting a Car Loan
1. Know Your Budget Before You Fall in Love With a Car
It’s easy to get caught up in the excitement of test-driving cars and imagining yourself cruising down the coast, but hold your horses! Before you start shopping, crunch the numbers. Work out how much you can comfortably afford in repayments while still covering your everyday expenses and savings goals.
A good rule of thumb? Your total car costs (loan repayments, insurance, fuel, rego, and maintenance) shouldn’t exceed 15%–20% of your monthly income.
2. Check Your Credit Score First
In Australia, your credit score plays a huge role in what kind of interest rate you’ll be offered. A better score can mean a lower rate, which translates to less money wasted on interest.
You can check your credit score for free with sites like Equifax, Experian, or illion. If your score is looking a bit sad, consider taking a few months to improve it by paying off small debts, avoiding missed payments, and limiting new credit applications.
3. Save for a Deposit
While some lenders offer 100% car loans, having a deposit (even 10%–20%) can help you score a better interest rate and reduce your loan size, meaning less interest overall. Plus, a deposit might give you a bit more negotiating power.
4. Get Pre-Approved Before You Start Shopping
Pre-approval means a lender has checked your financials and given you an idea of how much you can borrow. It’s not a guarantee, but it gives you a clearer picture of your budget and stops you from wasting time looking at cars outside your price range.
5. Compare Lenders and Don’t Just Settle for Dealer Finance
Car dealerships will often offer their own finance deals, but these are not always the best option. Compare rates from banks, credit unions, online lenders, and even peer-to-peer lending platforms.
Use comparison websites like Canstar or Finder to see who’s offering the best rates and terms.
6. Understand the Terms and Read the Fine Print
Not all car loans are created equal. Some key things to check in the terms:
Interest rate (fixed vs. variable)
Comparison rate (includes fees and charges, so it’s a better reflection of the true cost)
Loan term (shorter means less interest, but higher monthly repayments)
Fees (application fees, ongoing fees, early payout fees—these add up!)
Balloon payments (large lump sums at the end of the loan term—can lower monthly repayments but be a shock if you’re not prepared)
Dangers to Watch Out For
1. Overextending Yourself Financially
It’s tempting to borrow more so you can get that dream car, but be realistic. Taking on too much debt can leave you struggling if your financial situation changes. Always factor in some buffer in case of emergencies.
2. Falling for 0% Interest Deals
Sounds too good to be true? That’s because it often is. Many 0% interest car finance deals mean the car’s price is inflated, or there are hefty fees built into the contract. You might actually be better off negotiating a cash discount and using a standard low-interest loan.
3. Not Considering Running Costs
The loan is just one part of owning a car. Factor in insurance, fuel, rego, servicing, and unexpected repairs. Some makes and models are notoriously expensive to maintain, so do your research.
4. Skipping Comprehensive Insurance
If you’re financing your car, your lender will likely require comprehensive insurance. Even if they don’t, don’t risk going without it. If your car is written off, you’re still on the hook for the loan unless you have the right cover.
5. Taking a Loan With a Long Term Just for Lower Repayments
Yes, a longer loan term means lower monthly repayments, but it also means paying a lot more interest over time. If you can afford slightly higher repayments, aim for a shorter loan term to save money in the long run.
Car Loan Hacks to Save You Money
1. Pay a Little Extra Each Month
Even if your loan terms allow only minimum repayments, paying just a little extra each month can significantly reduce your interest and help you pay off the loan faster.
2. Time Your Loan Repayments to Your Pay Cycle
Most loans default to monthly repayments, but if you get paid fortnightly, switch to fortnightly repayments. You’ll end up making an extra repayment each year, which helps pay off your loan faster and saves on interest.
3. Ask for a Lower Interest Rate
Many people don’t realise you can negotiate your interest rate, especially if you have a good credit score. Don’t be afraid to ask your lender for a better deal.
4. Avoid Loans With Early Repayment Penalties
Some loans charge fees if you pay them off early—avoid these if you think you’ll want to clear your debt ahead of schedule.
5. Check for Special Offers and Cashback Deals
Sometimes lenders offer cashback deals or fee waivers as incentives. These can be worth considering if they truly save you money.
6. Refinance If You Find a Better Deal
If you’ve had your car loan for a while and interest rates have dropped or your credit score has improved, refinancing could save you a chunk of money. Just be sure to check for exit fees before making the switch.
Final Thoughts: Be Smart, Be Prepared, and Drive Away Happy
Getting a car loan isn’t just about picking the cheapest interest rate—it’s about making sure the entire deal works for you in the long run. By doing your homework, avoiding common pitfalls, and using a few insider hacks, you can get the car you want without unnecessary stress or financial strain.
So, take your time, shop around, and don’t rush into anything. Your future self (and your bank account) will thank you!