Fincar July 26, 2020 No Comments

In uncertain economic times, it becomes far more important to make the right buying decisions when making large purchases. While you can often survive a buying mistake when things are going well, the wrong choices can be devastating in a more challenging economic climate, such as that right now amid COVID-19.

Car buyers should choose their vehicle carefully, focusing on needs ahead of wants and likes. It also goes without saying that it’s wise to shop around for the best deal on the vehicle of your choice.


Structuring your loan

A wide range of financing options exist for those purchasing a motor vehicle. These options include hire purchase, leasing, personal loans, using a business overdraft or business credit card. Buyers should carefully weigh the borrowing costs against advantages, and consider all the potential tax implications.

In times of economic uncertainty, it is particularly important to consider the term of the loan, any residual payment, the advantages of fixed vs. variable interest agreements, and the flexibility of loan terms. Consider insurance costs and running costs carefully. It may be prudent to borrow a little more to purchase a vehicle with lower running costs, especially since you can manage these expenses into your loan.

Before you look for finance, consider carefully what you can realistically afford. How will the economic downturn affect your ability to service a loan? What impact will current circumstances have on your ability to earn a wage? Many people respond to tough times by borrowing more, but the correct response is to budget and plan more diligently.

Check your credit history before you go loan shopping. If you want to get the best finance rate, you need to demonstrate a history of on-time payments.

If you are buying a car for private use, look for lower interest financing options. Bargain with lenders for the best deal. Many borrowers don’t realise that lenders operate in a highly competitive market, and will negotiate to get your business. That still holds true even in a downturn, where loan volumes dry up and while rates are at record lows. Don’t hesitate to tell your preferred lender if a competitor is quoting lower fees or interest rates. Consider using the services of a finance broker to source the best deal for your needs.

Business buyers should also bargain for the best deal, but check with your accountant about the possible tax advantages of hire purchase, leasing and rental agreements. Sometimes paying a little more for finance can help you realise generous tax savings.



Managing your loan

If you don’t already have a written monthly budget, consider drawing one. Work out what you can realistically afford to pay each month on your car loan. Allow for maintenance, fuel and oil, registration, and adequate insurance. If you can’t meet all these expenses, then you shouldn’t be putting yourself in debt to begin with. Make sure there will be enough left to meet your payment obligations comfortably, with a little left over to cover price increases and unexpected expenses.

Consider taking income insurance or insurance that covers your finance obligations in the event of job loss, accident, or serious illness.

Residual obligations should be considered carefully. Some buyers choose large residuals to reduce monthly payments, failing to plan for that day four long years away when you have to find $15,000 in one lump sum! Refinancing is sometimes an option, but don’t just assume that you will be able to refinance, because it might not be an option made available.

One you agree to a loan, make sure you make all payments on time. If you are unable to make a payment for any reason, contact your lender immediately and discuss your situation honestly. Work out how much you can pay, and offer regular payments, even if the amount needs to be reduced. Keep the lender informed of your situation. Reputable lenders will work with you if it is clear you are doing your best to meet your obligations.

Don’t be tempted to cut back on essential maintenance or insurance to save money! You may end up with a debt, but no car! At the same time, though, it is worth shopping around for the best deals. Don’t buy more insurance than you need. Compare prices for car servicing that isn’t covered by warranty, but be sure all required servicing is carried out by a reputable mechanic. You car is a means to investing in your livelihood, and if cared for well, it will give you many years of reliable service.

In times of economic uncertainty, your income might depend on having access to a reliable vehicle. With careful planning, you can finance that new car with confidence, even when the economic outlook is uncertain!


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.