Fincar March 15, 2021 No Comments

If you’re new to the world of finance and car loans, you might be mistaken for thinking that every car loan is equal. Dip your toes into the realm, however, and the reality shock will only hit you too quickly as you learn that no two loans are alike.

The most obvious thing about a loan is the amount you’re borrowing, which is officially known as the principal. Depending on whether you have put a down-payment towards the car or a deposit towards the price of the car, the principal will either be the purchase price of the car, or slightly less. Another way to put it, the bigger the deposit, the less you have to borrow. And the less you borrow, the less you’ll end up paying in interest.

The first place where most car loans differ is in the area of interest rates. The lower the interest rate, the less you’ll pay in the long-run over the life of the loan, even though it is compounded along the way. Interest rates are either fixed at a certain figure, variable and go up and down at the whim of the lender, or capped, which is effectively a variable rate but with a limit that it will never exceed.

Meanwhile, the term of the loan is the amount of time given to pay off the loan. As a general rule of thumb, it makes sense to pick a loan term that will be shorter than the amount of time that you plan on owning the car. This is because selling a car that is already under finance can be particularly difficult, with second-hand car buyers likely to be put off. On top of that, the financier may well have some concerns because the collateral, that is the car held as property against the loan, is part of the rights they have access to repossess.

Next, repayments can usually be done monthly or fortnightly straight from your bank account. The amount you have to repay per fortnight or month is tied up with the interest rate, the principal and the loan term. Opting for a fortnightly payment schedule as opposed to a monthly one ensures that you pay off more of the loan across a year as there are 26 fortnights in a year, but only 12 calendar month. As such, cutting into that outstanding principal will reduce your total interest.

Finally, another one to consider is whether you can make lump sum repayments. Some loans don’t allow this, believe it or not. Some other loans charge an extra fee if you pay the loan off earlier than the due date. This is something that you need to bear in mind when you take out a loan. If you do end up with a bit of surplus funds in your bank account, it can make financial sense to pay a loan off to reduce the amount of interest you have to pay. However, if there are penalties that offset this benefit, then you may have to reconsider your options.


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.