In recent month, with interest rates increasing rapidly, and more rate hikes still to come, a lot of attention has been directed towards the importance of setting yourself up with reliable finance that you can pay back.
The fact that home loan borrowers are now suddenly staring at rates that could be multiples of what they originally signed up for emphasises the importance that applicants should understand what they’re signing up for, and ultimately, how to keep your finances in check.
When it comes to car loans, consider these matters before you sign a finance agreement, otherwise it could dramatically impact the cost of your loan.
Use competition in the market to your advantage
With all sorts of deal structures available when it comes to financing, you should never stop doing your homework.
Differences in base rates or ancillary costs can be enough to make a significant impact over the life of a loan. Furthermore, some lenders will offer flexibility that you can’t always put a price on.
If in doubt, engage a car loan broker to do your work for you and help attain the best outcome. Ultimately however, in the finance industry where there is no shortage of players vying for your hard earned money, don’t make it an easy task for them.
Do you really need to purchase those add-on extras?
Dealerships have a long history of offering extras to new car buyers. Some of these extras might be modifications to the car – such as enhanced paint protection, an improved body kit, or a ‘sports’ package – while others might concern the purchase itself. For example, insurance or extended warranties.
If the item isn’t something that you originally set out to include as part of your purchase, reconsider whether it is actually necessary and what actual benefits or coverage it provides. While it’s not to say the add-on extra won’t benefit you, the dealership and salesperson you’re negotiating with does stand to gain from its inclusion.
On that point, it’s also worth remembering that you don’t have to purchase everything through the one channel, and if you do, it will increase the total cost of your loan and repayments. Can you really afford higher repayments as interest rates increase, even if it only affects other loans you might have?
Knowing what is important during negotiations
Naturally, all car buyers try to negotiate a better outcome at some point during the purchasing process. After all, who wants to pay more than they should? That said, many fall into the trap of negotiating an outcome that suits their ideal repayment levels. From a financial management perspective, it may seem prudent to know your means and limitations before taking out a loan. And this is certainly true – up to a point.
While you should keep this knowledge in hand, revealing it to the dealer can work against you, giving them more negotiating power. Instead, focus on the purchase price of the vehicle itself – taking out those unnecessary add-ons and extras. Drive down this purchase (retail) price to shape the resultant interest and repayment costs for your loan, since this is the underlying asset which is subject to finance.
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.