Recently, I provided some commentary on car loans and it got me thinking about how I approach buying a car and what we see with our customers. Even though we launched loans.com.au as a mortgage lender back in 2011, in the last few years we have successfully been building our car loan business.
In that time, a lot of new lenders and brokers have popped up and that, coupled with a low-interest-rate environment, has made the car loan space very competitive. This is a win-win situation for Australian consumers looking to buy a new car, because with a bit of shopping around they can find a pretty good finance deal.
So, when people buy a new car, what’s their common approach when it comes to car shopping and car loan shopping?
When our customers go car shopping, let’s face it, they don’t really care too much about the finance. A lender has its place and we need to be very aware of the “why” when it comes to our customers. The customer focus is on the car, not the car loan. As lenders we are enablers: the means to the end.
So, from the above, I had a think about a few tips and tricks borrowers should consider when they are getting finance for a new car from a dealer.
1. Don’t visit the car dealership unprepared
I personally hate car shopping! I can hand on my heart say it’s my least favourite kind of shopping. It’s nice to look at your next car, but once you go for that test drive, you feel like you are at the mercy of the car salesperson. There is a line between enjoying the way it drives and not giving away any emotion on just how much you are enjoying it! And let’s be honest, no offence to any car dealers reading this but they don’t really have the best reputation.
The ‘drive-away’ price is never the final price and there is always a conversation that ends in “let me go speak to my manager”. You can end up at the dealer for the best part of a day going backwards and forwards, and in the end, you don’t really know if you’ve won.
While you love your new car, you just don’t want to feel like you’ve been ripped off buying it. And you don’t want to be pressured into taking out dealer finance on the day! Happiness can turn into remorse very quickly.
So, taking a look at our customer base and the conversations my teams commonly have, I believe that getting the finance pre-approved first is one way to alleviate stress. Also, if you have pre-approval you are getting into a better negotiating position before a visit to the car dealer.
2. Shop around for car loans
At loans.com.au, most of our customers come to us after they’ve done a bit of shopping around. It’s very easy to jump online and do some research, and there are lots of different deals around now, and a lot of good comparison sites that have lists of different car loans available via various lenders.
Our customers usually do a lot of research and then narrow it down to a few lenders. They most commonly look at the comparison rate as a first point of reference. This is the rate that not only considers the car loan interest rate, but incorporates any other fees and charges associated with the loan.
3. Use a car loan calculator
However, while a comparison rate is a good way to compare lenders, it is no substitute for using a car loan calculator to add up all your fees, charges and monthly repayments. Understanding the actual dollar amount is important for every borrower, so you know what you can afford and what you will be paying. Doing an actual dollar comparison is one of the best ways to compare lenders.
4. Pick up the phone
Once you’ve narrowed it down to a few lenders - my biggest tip is - don’t forget that it’s free to talk to any lender! Get on the phone and have a chat. Each lender has different rules and documents required, so it’s important to do some research and make sure any potential lender is a good fit for you. You don’t have to apply on the spot, just speak to them to get some more information.
Car loans are like any other service, if you don’t shop around you will end up paying too much.
5. Consider discounts
Depending on the type of car, you may also qualify for a discount. For example, at loans.com.au we work with the Clean Energy Finance Corporation (CEFC) and if a car is on an approved list, our customers qualify for a 0.7% discount straight up. So, something definitely worth considering before you go shopping, you can save money and be environmentally responsible at the same time.
6. Get pre-approval
Once you have settled on a lender, before you go car shopping, it’s important to get pre-approval. Not only will you be clear on what your budget is before you go to the car yard, it will strengthen your negotiating power. Just make sure you get pre-approval with only one lender because getting pre-approval with multiple lenders may damage your credit score. This is something we see all the time!
7. Be wary of dealer finance
Finally, let’s talk about cheap interest rates that you see advertised with car dealers. Personally, I don’t really like these kind of deals and this is something to be very wary of. Cheaper low interest dealer finance can look good on the surface but it usually comes with a higher sale price for the vehicle to compensate the dealer.
There are so many factors to consider even before getting to the car yard but, by being prepared, it will make the car shopping experience less stressful. By having your finance lined up, it will make you feel more confident and your negotiating position a lot stronger. That’s probably my biggest tip, being organised and well researched is the key when getting a car loan.
In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through to the website links.