The year 2017 set a new record in Australia for most new car sales. That year saw over a million factory-fresh motor vehicles hit the open road.
With wages in Australia stagnating, how did so many Australians fund this boom?
Well, according to Australian Bureau of Statistics (ABS) data, many automobile enthusiasts turned to car loans to finance the purchase of a new vehicle. In fact, the ABS found that 1 in 5 new cars purchased was paid for with a car loan.
As one of the cheapest ways to finance new motor vehicle purchases, car financing options are becoming more competitive than ever. It’s important to look at each financing option to find the best car loans for your new purchase.
Considering each financing option will ensure you get competitive interest rates and the loan option that works best with your circumstances. When it comes to purchasing a new car, you have several options (four, in fact, though cash is often not a viable option for many).
Before you decide which lender to procure a loan from, here’s how each one stacks up.
- Borrowing from the bank
Unless you’ve recently won the latest TattsLotto or Oz Lotto or have a substantial amount in savings, odds are, you’ll need to finance the purchase of your new car. Turning to the bank to finance the purchase of your new car is the traditional route many take.
But, while it’s the conventional method of car financing, it may not be the best option.
Despite its convenience, banks have strict lending criteria. If you have a less-than-perfect credit history, that will count against the success of your application. Overdrawing on your savings account or missing credit card payments will diminish the probability of you obtaining an approval.
Your financial profile may also impact your application’s success. It becomes tougher to get a bank loan for a car purchase if your financial profile presents issues like casual employment or credit impairment. Your current relationship with the bank in question will help identify your creditworthiness.
- In-house financing with a dealership
Like a bank, car dealerships provide convenient in-house financing for applicants looking to purchase a vehicle. For those eager to buy and drive off the lot immediately, few lending options can rival the convenience of dealership lending.
Some features of dealership financing that may be of interest include:
- Manufacturer-discounted interest rates
- Savings on a specific vehicle make or model
- Better extended term financing
- Financing with better loan-to-value ratios
While financing at the dealership may provide consumers some benefits, there are downsides to working with a dealer for your financing needs.
As a car dealership’s main objective is to get vehicles off of their lot, their financing option may be easier in the short term. Their lower interest rates may be part of a promotional offer. But that 0 percent interest may drastically increase past the first year.
Additional fees should also be of concern. Zero rates often come with extra payments such as administration or processing fees.
- Borrowing from a finance company
If you require a car loan to buy a motor vehicle, a car finance broker may be a viable option for obtaining a car loan at a competitive rate. As car finance companies specialize in car loans, they feature some of the most competitive car finance rates available.
With an extensive panel of lenders available, car finance companies can cater their loan options to suit your specific requirements. This gives you, the consumer, flexibility in finding the right lending solution that’s right for your financing needs.
Car finance companies can even assist those with the most difficult credit circumstances. Whether you’re new to the country or have bad credit, car finance companies can get loan approval, providing a positive outcome.
The wide suite of lenders competing for your business means you’ll obtain competitive rates that can rival banks or dealerships. Many websites also offer a car loan payment calculator to help you estimate your repayments.
But, disadvantages are also present with car finance brokers. Approval through a car finance company will take time. Often, applications take up to 24 hours. This means putting on the brakes on immediately driving off the lot with your new vehicle.
Extra fees may also be present. Similar to car dealerships, finance brokers may charge an administration and process fee, so check what fees are typically charged.
Getting the best car finance for your money
Whether you acquire your car loan through the bank, dealership, or a car finance company, it’s important to do your research first. With so many options available, due diligence will ensure you get the best rates for your money.
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.