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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Secured Car Loans vs Unsecured Car Loan

When you compare car loans, you will find both secured car loans and unsecured car loans. As with any other loan type, each has its own pros and cons. To make an informed decision, you need to understand the differences between them. In this article, let’s delve into the advantages and disadvantages of secured and unsecured car loans.

Secured Car Loans

If a loan is secured, it means that you provide some sort of collateral for the loan. If you fail to repay it, the lender has the option to recover the money by selling that collateral. A home mortgage is probably the biggest secured loan that you will have but the concept also applies to car loans.

A secured car loan is similar to a mortgage but the amount is much lower. With this type of loan, the lender will register its interest in your vehicle on the Personal Property Security Register until you have paid off the loan. Of course, if you fail to repay in full, the lender can sell the vehicle to recover the money that you owe. These loans usually comes with a fixed interest rate, resulting in consistent monthly repayments.

A secured car loan also typically has a lower interest rate than an unsecured loan. So if you’re buying a new car, consider getting a secured car loan as it is cost-effective and you may get a better interest rate. Bear in mind, however, that this does not mean that getting a secured car loan is automatically the best way to go.

Unsecured Car Loans

With this type of car loan, the lender does not have a claim against the car to recover the money you owe if you fail to complete the repayments. This gives you a lot more flexibility in what vehicle you buy because the lender isn’t relying on the car to secure the loan. You can buy an older car which is usually less expensive, and borrow a smaller amount. In the long run, getting an unsecured car loan may be a better option since you’ll be able to pay back the loan sooner. However, since there’s no collateral, it usually has a higher interest rate.

When deciding which car loan to get, make sure to weigh the benefits and drawbacks of each type and see which better suits your needs and financial capacity. As for the repayments, you can use a car loan calculator to give you an idea of the amount of money that you need to shell out every month.

Do you have other ideas on how to compare car loans? Share your tips in the comments section.

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What is a Business Car Loan?

A business car loan is designed to provide funds for individuals who use their vehicles for work or business. One great thing about this type of loan is that it comes with a lower interest rate than a personal car loan.

Here are some of the things that you need to know about business car loans:

Eligibility

A business car loan is not for every driver, so how can you be eligible for it? You must meet these requirements:

  • Do you use your car for work? As the name suggests, a business car loan is for you if you use your vehicle fully or partially for commercial purposes.
  • Talk to your employer. If your car is not used for your own business, you can talk to your employer who can provide enough documentation for you to get a loan. It’s essential to compare car loans from several lenders, and check their car loan rates to ensure that you’re getting the best deal.
  • The standard requirements of your lender. These will vary depending on your chosen lender. If you meet the requirements, you may be eligible for a business car loan, whether it’s a novated lease, finance lease or chattel mortgage.

If you’re curious about what your repayments would be, you can use a car loan repayment calculator. This online tool can give you an estimate based on the price of your chosen vehicle as well as the loan rate and term. Bear in mind, however, that it is used only as a reference. The actual figures will be determined once you apply for the loan.

Application

There are different types of business car loans, but generally speaking, you may want to consider these guidelines when applying for a car loan:

  • Look for a car loan online. Many of the best deals are offered by online lenders.
  • Have the the necessary documents available when you apply. Just like in any type of loan, there are several documents that you need to prepare when applying for a business car loan. If you’re employed, you may need to ask your employer to provide documentation about your employment.

The approval may take some time, depending on factors such as your current financial capacity and credit score.

Do you have other idea on how to compare car loans? Share your insights in the comments section.

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Understanding Different Types of Car Finance Options

There are a lot of financing options for you to consider when you plan on buying a car. In Australia, you can check out lenders like loans.com.au. Their websites have car loan calculators that can greatly help you work out your monthly repayment and customize the terms of payment. These are also great for when you compare car loans as well as the car loan rates as there are many different types of car finance options.

Here are several car finance options to consider:

Personal loans or car loans

This type of loan is a sum of money that a financial institution lends you to buy a car and payment is agreed upon usually on a monthly basis plus the interest which is calculated on an annual basis. The car title, generally, will serve as the collateral for the loan which means that failure to follow the payment terms will lead to repossession of the vehicle.

Personal loans can be secured or unsecured loans. Secured loans will require some of your assets as collateral for security purposes. With collateral, interest rates are lower, and lenders tend to be more flexible when lending more money. When you default your payments, the lender can use your collateral to cover for the amount of your loan. If the collateral is insufficient, you will be responsible for paying the difference. On the other hand, unsecured loans are not tied to any of your assets. This type of loan is typically more expensive, given that they have no collateral.

Finance Lease

This is where the financier or lender buys the car and leases it to the borrower. You can use the vehicle right away with minimal capital. You pay a fixed amount monthly and take full responsibility of the car. When the lease period ends, you can choose to refinance, return, or buy the car for the residual amount.

Novated Lease

This is an arrangement with the employee consumer, the employer, and the car financier. The employer’s role is to pay the financier the monthly obligations through the employees’ salary, meaning, the employees’ salary is reduced in exchange for the value of the vehicle. The operating costs of the vehicle is shouldered by the employee and, in case of employment termination, the employee takes full responsibility of the vehicle.

Chattel Mortgage

The financier lends money for the purchase of the car while holding a mortgage over the car, and this mortgage guarantees the payment of the loan. The ownership, however, is given to the borrower while still giving regular payments.

Do you have other ideas when it comes to car loan rate and how to compare car loans? Share your insights in the comments section.

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Balloon Payment Explained

Many opt to apply for a car loan to buy a car, and when you compare car loans to get the best deal, it is essential to weigh the pros and cons of several factors including the option to have a residual value or a balloon payment on the loan.  Should you select this option, how much should it be? Read on to know more about the balloon payment:

Also called a residual value, a balloon payment refers to the lump sum that is owed to the financial institute at the end of a car loan term, after making all the regular monthly repayments.  It enables you, as a borrower, to pay only a portion of the principal loan amount throughout the agreed term. Having a balloon payment lowers your monthly repayments in exchange for paying a lump sum when the loan term ends.

To illustrate: If you borrow $10,000 that will be paid for five years, and you agree to have a balloon payment of 10% ($1,000), you will make lower repayments on a monthly basis.  After five years, you will pay the lender $1,000.

Having a balloon payment for your car loan is optional, but should you wish to have this option, here are some tips to consider:

Compare car loans

The balloon payment will enable you to get the car that you want since it will reduce your monthly repayments. Take note, however, that in most cases, it can be a huge amount as it is based off a percentage of the purchase amount. Check the car loan rates so you can choose the right loan.

Know the interest involved

Taking out a balloon payment can mean a higher amount of interest payable throughout the loan term. This will also increase the amount of interest to be paid per repayment.  In other words, if you apply for a loan that comes with a balloon payment, a bigger portion of your outgoing cash flow can be tax deductible.

Make additional monthly repayments

Do you receive additional income such as bonuses? You can use these to add more repayments towards the residual value.

Upgrade your car

Having a balloon payment also enables you to keep your monthly repayments lower and update the amount of the balloon payment to the estimated value of the car when the loan term ends.  Some people trade their car in after making the balloon payment. Then they apply for a car loan for their next car with a balloon payment again.

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

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How to Get Pre-approved for a Car Loan

If you’re planning to buy a new car, you may have heard of the term pre-approved car loan. This setup offers a lot of benefits. First of all, you will have an idea of what you can afford. Since your financial capacity will be assessed beforehand, you will know how much you can borrow as well as your repayments and car loan rates. Also, it will give you the upper hand when choosing a car and negotiating a deal. By knowing how much you can afford, you can use this as leverage when it comes to discussing the sales price.

How to Get Pre-approved for a Car Loan

Shop around

When planning to make a major purchase through a loan, make sure to do your research. This holds true when buying a car. With so many brokers offering a wide range of services, it is best to compare car loans before signing anything. Check their car loan rates and other features so you can have the best deal.

Prepare all the necessary documents

Of course, you need to prove that you have the financial capacity to manage your repayments. Other documents are needed as proof of your identity.

Talk to your chosen broker

You can either call them or send your application online. They will assess if you’re eligible for a car loan and recommend the best options for you. They will then help you in setting up the pre-approval to the right lender.

Features of a Pre-approved Car Loan

Here are some of the features to consider when applying for a pre-approved car loan:

Fixed or variable interest rates

If you choose a fixed interest rate, your repayments will be the same every month throughout the duration of the loan. On the other hand, you can take advantage of the flexibility being offered by a car loan with variable interest rates.

Longer loan terms

Car loans with a fixed rate can have a maximum loan term of five years, but there are loan terms that can reach seven years, making repayments more manageable.

Several payment options

Lenders offer different payment options but in general, you can choose from weekly, fortnightly or monthly repayments, depending on what’s manageable for you. You can also use a car loan calculator to give you estimates of your repayments depending on the payment frequency.

Do you have other ideas on car loan comparison and car loan rates? Share your tips in the comments section.

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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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