5 things to consider before refinancing your car loan

Whether it’s to secure a lower interest rate, add flexibility or consolidate debts, refinancing your car loan (switching from one loan to another) can be a useful step to take.

But as with refinancing a home loan, car loan refinancing does not suit every borrower. Here are five things you should consider before refinancing your car loan.

Car value

Before refinancing your car loan, it’s important to consider the value of your vehicle. Typically, this will not be the amount you paid for it. Cars are one of those purchases which generally lose value (depreciate) over time. If you owe more money to the lender than what your car is currently worth, you would likely be considered a higher lending ‘risk’ and might discover it difficult to find someone willing to refinance your loan. This is because if you defaulted on a payment and your lender had to seize your car and sell it, they probably wouldn’t get the full amount back that you owed them. So to ensure that you have a good chance of refinancing, have a good idea of what your car is currently worth and make sure it is more than what you currently owe.

Remaining Term left on your Loan

Car loan terms are almost always significantly shorter than home loan terms, with typical loan periods between one to seven years. You should look at your current loan length and decide if it’s worth the time, effort and potential cost of refinancing.  For example, if you only had a year left on your car loan, refinancing could end up costing you more in fees than if you were to complete the final year of payments.

In contrast to that, if you still had five years to go of a seven-year term and don’t believe you’re getting the best interest rate, it might be an idea to consider refinancing.

Get Across the ‘Change’ Costs

This goes hand in hand with your loan length and is a critical thing to consider before refinancing your car loan. Some of the costs involved in refinancing can include exit fees, valuation fees, application fees and break fees. For people who don’t have long left on their term, these types of costs could mean that they end up paying more in fees than what they will save by switching to a better interest rate.

Many lenders understand this and will from time to time make special offers to waive some of these fees, so it always pays to keep an eye on special promotions being offered in the car lending marketplace.

Case Study – Comparison of Kelly and Michelle’s car loan refinance

Both Kelly and Michelle have car loans of $30,000 over five years (with no balloon) repaying monthly at an interest rate of 6.44% p.a. Kelly has four years left on her loan whereas Michelle only has two years left on hers.

They both found a lender willing to refinance their loans at an interest rate of 5.44% p.a. (a discount of 100 basis points), with total refinancing costs coming to $90.

Kelly has done the calculations and found if she refinances her car loan and pays the $90 cost, she will still save $415 in interest over four years.

Michelle decided to refinance her car loan without investigating the change costs and found later that because she only had two years left on her car loan, she only saved $7 in interest over the two years after the refinancing costs of $90. For savings of only $7, Michelle may consider whether the time and effort she put in to change the loan over to the new provider was actually worth it.

Looking after your Credit Score

Another thing most people don’t realise is that every application they make for credit (eg. a loan) goes onto their personal credit file and can negatively influence their individual credit score. This might mean that refinancing your car loan too often could make it difficult to receive a good value interest rate on future applications of credit in other areas such as a home loan or a personal loan.

The interest rate market

Refinancing your car loan may be a good option if you really want a lower interest rate to drive cheaper repayment options, but it is important to consider whether refinancing your car loan will help you to make on overall net saving and in turn accumulate more money in the medium to long-term.

A quick look at the rates currently on offer in the marketplace for car loans (secured by the vehicle itself) shows that there is a near 9% difference (in the raw % comparison rate) between the highest and lowest car loan interest rate, so it’s important to shop around before making a purchase decision. Don’t forget, car loan calculators can help you figure out what your monthly repayments and total interest costs will be.

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What is a Green Car Loan?

Learn what a ‘green car’ is and what some of its benefits are – plus find out why these cars attract a different interest rate on a car loan.  

What is a green car?

A green car is a car that is better for the environment than standard cars because it produces fewer carbon dioxide emissions.

Carbon dioxide (CO2) is a greenhouse gas and one of the biggest contributors to global climate change. It is produced by burning organic and carbon compounds such as petrol so environmentally friendly cars often run on little-to-no fuel.

Some lenders offer a discounted interest rate on car loans for low emission vehicles to encourage borrowers to be more environmentally aware.

So essentially, lower emissions can equal lower interest rates.

What qualifies as a green car?

A car needs to have significantly lower than average carbon dioxide (CO2) emissions to qualify as a ‘green car’ and this must be compared to other vehicles of its size.

According to loans.com.au, you are likely to qualify for a green car loan if the car:

  • Is a new or demonstration vehicle
  • Is more fuel efficient than average (when compared to cars of its size)
  • Is a hybrid vehicle (which uses both petrol and electric engines to power the car)
  • Emits less than 141 grams of CO2 per kilometre for a passenger vehicle, or less than 188 grams of CO2 for a ute or van

This information should be displayed somewhere in the vehicle – either on the windscreen or in the service manual.

What are the benefits of owning a green car?

There are a number of benefits involved in driving a green car – both for the environment and for the owner. In particular, green cars:

  • Can reduce the interest rate on a car loan, saving you money over the course of the loan
  • Produce fewer emissions, which reduces the amount of CO2 released into the environment
  • Create less noise than regular vehicles with sole combustible engines
  • Will generally save you money on the cost of fuel as they are more fuel efficient (which means fewer stops at the fuel station)

Can I save money with a green car loan?

A recent initiative to help reduce carbon emissions was the introduction of discounted loans for environmentally-friendly cars. Vehicles which meet the eligibility requirements above can receive an interest rate of under 6% p.a., saving you money over the course of the loan.

Case Study

Damien was looking at taking out a $30,000 car loan (5yr term) when he noticed that his lender offered a 0.7% p.a. discounted rate for green cars. After doing some research, he discovered that while green cars were a little more expensive upfront, he would not only save money from fuel efficiency (and reduce his CO2 emissions) but that he would also save nearly $600 in interest payments over the 5yr loan term from the 0.7% p.a. green car loan discount that he would get from his lender. Damien decided that the sum of the benefits was worthwhile in buying a car that qualified for a green car loan.

Final word

For some people, the benefits of discounted interest rate and fuel efficiency of green cars outweigh the higher purchase price. At the end of the day, it depends on your personal financial situation.

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How to Get a Car Loan that’s Cheaper than Dealer Finance

Buying a car is a significant decision as it will affect your financial situation. Whether it’s for work or business or for family use, new or secondhand, the key is to determine your repayment options and if you can afford it.

You can get a car loan or dealer finance. In some cases, a car loan is a better choice. Unlike dealer finance, a car loan offers more options and flexibility. If you cannot keep up with repayments, the bank can adjust your loan term. Also, there are banks that allow early repayments without fees. How can you get a car loan that’s cheaper than dealer finance? Here are some things to consider:

Compare car loans

Know what’s available and check what meets your requirements and financial situation. There are several financial institutions and unions that offer a range of car loans. Make sure to know their offerings so you can have a well-informed decision.

Check the interest rates

The interest rate plays a significant role in either car loan or dealer finance as it affects the amount of your repayments. In general, dealer finance offers lower car loan rates but this doesn’t necessarily mean better deals. Interest rate is an important component but there are other factors to take into account. That is why it is important to check the rates of both options to get the best deal for you.

Know how much you need to pay regularly

You can determine the amount of repayments using a car loan repayment calculator. Bear in mind, however, that it will only give you estimates. There are many factors involved when buying a car, so use a car loan repayment calculator only as a guide.

Be wary of extras

The actual amount should not be affected by extras such as extended warranty. The same goes for other charges that may come with the car loan. Make sure to ask about the extras so there are no unpleasant surprises later on.

Car loan and dealer finance are two common options when buying a car. Each has its own benefits and disadvantages. What’s important is to weigh these pros and cons to see which offers a better deal based on your requirements and preferences. Should you choose a car loan, keep these tips in mind so you can buy your car with terms that are in your favor.

Got other ideas on car loan rates and how to compare car loans? Share your tips in the comments section.

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How to Tell if a Car is Fuel-efficient before You Buy

Many Australians opt to buy a new vehicle, whether for business or work or family needs. There are so many models to choose from and a lot of things to take into account. This makes the car selection process a bit time-consuming, not to mention the car loan rates which are also important when buying a new car.

One of the main considerations when buying a new car is its fuel efficiency. It refers to the distance that you can travel on a certain amount of fuel. This feature of a new car means that the further you can drive every 100 kilometres, for instance, the more money you will save on petrol. Not only is it relevant in reducing the impact to the environment through lower greenhouse gas emissions and air pollution, it signals significant savings in the long run. But how can you tell if a car is fuel-efficient before you buy?

Fuel Consumption Label

Cars, four-wheel drives, as well as light commercial vehicles available in Australia should display a Fuel Consumption Label which indicates the running costs and emissions performance of the vehicle. You will see figures that show the number of litres of fuel needed to drive 100 kilometres, as well as emissions of carbon dioxide (in grams) per kilometer. Bear in mind that the lower the figures are, the better.

However, for cars which were manufactured from 2004 onwards, you can check their fuel efficiency information at the GreenVehicleGuide. If you’re looking at cars which were made between 1986 and 2003, you can check the fuel consumption guide database.

Petrol vs. Diesel

While petrol is the preferred fuel choice in Australia, diesel is getting more and more popular. In general, engines running on diesel are more fuel-efficient since they use compression ignition that leads to a more efficient fuel-burn.

Compare car models

It pays to do a lot of research to know which vehicles are fuel-efficient and suitable for your needs and preferences. You can check the websites of car manufacturers as well as comparison sites so you can compare their offerings and come up with a more informed decision.

While checking car models, you may also want to compare car loans. Both are essential components when it comes to buying a new car. You can check car loan rates and even use a car loan calculator so you will have an idea on how much money you will need for repayments.

Got other ideas on fuel efficiency, car loan rates, and how to compare loans? Share your tips in the comments section.

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Green Vehicle Guide in Australia

In recent years, we’ve been hearing news of establishing policies that will help reduce the impact of climate change. Support from numerous governments is needed to achieve this goal but as citizens, we can also contribute to this initiative. In fact, we can do this in a lot of ways, and one of them is to choose an environment-friendly vehicle.

What makes a vehicle environment-friendly? In general, a car or vehicle can be considered environment-friendly if it has a low impact on the environment. How would you know if your vehicle is environment-friendly? This is where the Green Vehicle Guide in Australia comes in. In a nutshell, it provides details on how light vehicles sold in the country perform in terms of reducing its impact to the environment. These details include the greenhouse rating based on carbon dioxide emissions, air pollution rating based on emission standards, and fuel consumption.

Are these details from the Green Vehicle Guide reliable? Yes, the information is given out by authorised representatives of vehicle manufacturers. It comes from the certified data that is necessary for labelling standards on emissions and fuel consumption. Data is then cross-checked and audited by the department.

Planning to buy an environment-friendly vehicle? Here are some things to consider:

  • Check the Green Vehicle Guide. With essential information on carbon dioxide and fuel consumption, it will greatly help you identify the model of the vehicle that has the lowest possible impact to the environment.
  • Compare car loans. Banks and other financial institutions vary in terms of the car loans that they’re offering. To get the best deal, make sure to check their car loan rates. You can likewise use a car loan comparison online and/or seek professional advice.
  • Use a car loan calculator. Car loan comparison will be easier if you use a car loan calculator. This gives you an idea of the amount of monthly payments that you need to pay. Take note, however, that a car loan calculator can only give an estimate. You may use it as reference so you can adjust your regular budget.

If you’re serious about buying a green vehicle, consider checking the details provided by the Green Vehicle Guide. By buying an environment-friendly car, you will be able to do your share in reducing the impact of climate change.

Do you know other things about the green vehicle guide and car loan comparison that are worth considering? Share your insights in the comment section.

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What is a Chattel Mortgage when Talking about Car Loans

If you’re a business owner in Australia and you are looking around for a great car loan deal, you may have come across the term chattel mortgage. What is it? What makes it different from a typical consumer loan?

A chattel mortgage is a commercial car finance product wherein a finance company lets you borrow money to buy a car or vehicle (chattel) that will be used mainly for business, and you’ll make regular payments on the loan (mortgage). It differs from a consumer loan in the sense that the finance company secures the loan with the vehicle that you want to buy. Once you’ve fully paid the loan, you can take ownership and have a clear title of the vehicle and the mortgage will be removed.

A chattel mortgage comes with several benefits. It offers flexible contract terms, lower interest rates compared to consumer loans, fixed monthly repayments, and tax deduction. A residual balloon payment can also be applied so you can have lower monthly repayments.

There are different finance companies that offer chattel mortgage and car loans. Consider these tips to get the best deal:

  • Do your research and compare car loans. With so many things to consider, it is best to look around and see what your options are. Check the car loan rates and other features so you will have an idea of what meets your requirements and financial situation.
  • Use a chattel mortgage or car loan calculator. This gives you an estimate of the amount of your monthly repayments together with the interest. This is a helpful tool for car loan comparison as it gives you an estimate of how much you need to pay based on your preferred term.
  • Seek financial advice. A financial professional can help you better understand the terms related to car loans. It also has taxation implications. Cash basis taxpayers may claim all GST input tax credit up to the depreciation limit related to the purchase of a vehicle under a chattel mortgage facility. On the other hand, monthly repayments or residual amount is not subject to GST.

Do you have other tips on chattel mortgage and car loan comparison in Australia? Share your insights in the comments section below.

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Getting “Cheap” Car Dealer Finance means Paying More?

There has been an influx of car dealerships offering low interest or zero percent interest to finance a new vehicle, this looks great on the surface, and it will easily gain the attention of a lot of customers in Australia, but is it really a good deal?

Disadvantages

If car dealerships are charging no or very little interest on their finance deals, they have to make a profit elsewhere which means that you will end up paying much more for your vehicle in the long run. Here are some of the ways a car dealership will make a profit outside of the interest rate:

  • Price: On a zero percent finance deal, you will pay the full retail price. If you were paying for the car in cash, you would be able to negotiate for a lower price.
  • Trade in Value: If you are trading in your old vehicle at the same time as getting zero percent interest on a new car, you will get a lower trading price than its actual value.

How can I avoid paying more?

There is only one way to avoid falling victim to unscrupulous car dealerships and that is to do your homework. Whether you are trading in your old car or purchasing a brand new one, before you walk into a car dealership, make sure that you are certain about the value of the car that you intend on trading in as well as the value of the car you will be purchasing.

You can also use a car loan calculator to work out how much your car loan rates will be. This will provide you with a clear idea of the cost of a typical finance arrangement.

You should also spend some time making car loan comparisons, don’t go with the first deal that sounds appealing because there might be something better for you.

Final Thought

Zero percent car finance deals are generally for those who have a low monthly spending budget. It means that you will pay more over the life of the loan but it suits your monthly outgoings by not having to pay any interest. If this sounds like you, before making a decision to take out a zero percent car finance loan from a dealership, make sure you have taken all available factors into account and conducted the proper research before making a financial commitment.

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