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Getting A Car Loan: A Beginner’s Guide
February 23, 2021●
5 minute read●
If you’re in need of a new vehicle, there are a lot of finance options available to you. In most cases, it is just not realistic to purchase a car outright, especially one that is brand new. Whether it’s a brand new car, a used gem or a family SUV, you may wish to take out a car loan to fund this purchase. Here is a beginner’s guide to getting a car loan.
What is a car loan?
A car loan is a secured loan used to purchase a car, either new or used. Consumers apply to borrow a specific amount, whether that is to fund part of or the entirety of the car purchase. This amount is repaid along with interest over the life of the loan. At Jacaranda Finance, car loan terms range from 1 to 4 years and you can borrow up to $35,000.
What are the different types of car loans?
There are two common types of car loans: secured loans and unsecured loans. Secured loans require an asset and unsecured loans do not require this collateral.
Secured loans involve using an asset against the loan as security for the lender. In the case that you are unable to repay your loan, the lender could potentially repossess your asset and sell it to cover their losses. This, however, is usually only done as a last resort.
Why should I use a car loan?
Car loans are great as a ‘buy now, pay later’ option for your car. Using a car loan allows you to gain access to a car you otherwise wouldn’t be able to afford. Rather than attempting to source thousands of dollars to spend at one time, you can pay in manageable instalments
Car loans also allow you to build your credit score, assuming that you make all the repayments on time. There are always lenders offering an array of different car loan products. You may be able to negotiate a deal that works best for you, depending on how much you wish to borrow and your current financial situation.
Where can I find a car loan?
Car loans are offered by a variety of lenders: banks, building societies, credit unions, alternative finance companies, and P2P lenders. You can also get car loans from car dealerships if you are looking to purchase through a dealer.
Because there are so many options available, it is advisable to do your research before you start shopping around for a car. If you decide to finance your loan through a dealership, be wary that some dealers will increase the price of the car to offer ‘lower interest rates’ than banks and other lenders. It is important to research not only your loan options but the car you are looking to purchase to ensure you are getting the best deal.
How do you apply for car loans?
You apply for a car loan just as you would any other loan. You will need to have the details of the car you are looking to purchase (make, model, price etc.) as well as your personal and financial information. With an online lender like Jacaranda Finance, you can supply all of your information completely online, which saves the hassle of providing physical paperwork and printing supporting documents.
Before you apply, it’s a good idea to look at your credit rating. If your rating is considered good to excellent by the major credit bureaus, you will likely be able to negotiate a better deal with lower interest rates. If you have bad credit, you will likely need to pay higher interest. You may also find it difficult to find approval through a lender like a bank that often has very strict credit requirements.
How long does it take?
The turnaround time will vary depending on which lender you go through. Typically, banks take longer to process loan applications and online lenders can be a bit faster. Jacaranda Finance, for example, offers same-day loan outcomes on car loans (if they’re applied for during business hours). However, it will depend on your individual circumstances.
What terms should I know?
There are a few terms you should know before you apply for a car loan. Loan terminology can often seem confusing without context. You may hear ‘APR’ or ‘comparison rate’ used in conversations about loans and have no idea what is being talked about. Here are some of the most important terms you should make yourself familiar with.
Annual Percentage Rate (APR) – the rate of interest charged as the cost of borrowing a loan for the year.
Comparison rate – the rate given to the overall cost of the loan, combining all fees and charges, so that borrowers can easily compare the costs of different loans.
Establishment fee – a fee typically charged when you borrow a loan (though it’s factored into your total repayments).
Interest – a percentage of the loan amount that is applied to the overall cost of your loan. There are two common types of interest: fixed rate and variable rate. Fixed interest rates mean that the interest rate will remain the same throughout the life of your loan; variable interest rates fluctuate based on the market.
Questions to ask your lender
When trying to find the most suitable lender, it’s great to ask questions if you’re unsure about any terms or conditions. Consider asking the following questions:
- What is the interest rate?
- Is there a way I can qualify for a lower interest rate?
- Are there any application fees or ongoing fees?
- Is the interest rate fixed or variable?
- Will I be charged for making extra repayments or paying off my loan early?
- How can I make my repayments?
- How can I check how much is remaining on my loan?
Car loans with Jacaranda Finance
If you’ve decided to apply for a car loan, Jacaranda Finance could be the lender for you! We offer car loans online up to $35,000 for both new and used cars. We offer flexible repayment terms from 1 to 4 years, so you can repay your loan with ease. If you want to repay your loan early, we won’t charge you early repayment fees. We keep things simple with our 100% online application form which is often completed in under 8 minutes.
We don’t just help with the loan aspect, we want to help you find the car of your dreams. Check out the 10 best cars to buy in Australia in 2021.
Written by Jacaranda Team