Guide to arranging car finance

So, you’ve found your perfect car, but how are you going to finance this purchase? Worried, nervous? Perhaps you have good reason; this is a complicated and frustrating process. Luckily for you, we have constructed a rough guide to help sort out financing this small extravagance. We have broken it down into a few small heading: initial research, finding quotes and getting approval (helpful? Aren’t we just). So read on, and remember that you can’t own the car if you can’t pay for it.

RESEARCH

Finance Structure

First thing first: researching the different financial structures available. It’s advisable that you search around the web, talk to consultants and accountants when considering which one to choose, since without thoroughly investigating the optimum agreement you may run the risk of losing thousands of dollars and being stuck in an inflexible contract. The main financial structures available are:

• Hire Purchase - the financier buys the car and then leases it to you at an agreed upon rate.
• Chattel Mortgage - the car is bought by the financier, who then takes a mortgage over the car as security
• Novated Leasing (for business use) – the employee leases the car from the financier, but the employer takes responsibility for payments withdrawn from the employee’s salary.
• Personal Loan – a normal loan from a financial institute with monthly repayments.
• Car Loans – similar to a personal loan, but the car is used as a security, so if you fail to meet payments the car will be seized (as a result the interest rates are significantly lower).

Type of loan required

Deciding on which loan to choose, it is important to marshal a few considerations including the length of loan required, the amount flexibility you desire, or whether you want to have a residual value (a large final payment that reduces your monthly rates). Knowing these exact requirements are not essential in choosing the type of financial structure you desire, but are important to keep in mind when discussing and comparing quotes with possible financiers.

Type of financial backer

Once you’ve chosen the type of financial deal you want, the next step is deciding on which finance provider to use. There are various types of financiers, including brokers, car dealer, finance companies or banks. The easiest way to get an initial idea is to do a quick Google search or get an online car finance quote, and make a shortlist of possible companies your interested in. When you call up the contending businesses, it is important to be aware of the particular areas to ask about. We suggest finding out the interest rates, about the payout penalties and any additional fees or insurance that might be included, and make sure that you properly record all the answers on paper, as you will likely forget details later when comparing the deals. If speaking to a financial sales representative, do not allow yourself to be coerced into signing any deals straight up; always take some time after the call to properly consider the offer and make sure that you’ve thoroughly investigated other options.

Lastly, it is advisable that you speak to a financial car broker as they can find you a broad range of deals and are experienced in comparing different quotes

IMPORTANT FACTORS TO CONSIDER IN COMPARING QUOTES

Cost: Interest Rates & Fees

Interest rates, how hard can it be? Cheapest must be best, right? Wrong. Though obviously obtaining a low interest rate is desirable, it is important to bear in mind other costs that are often involved. These can comprise of ongoing or upfront fees. So it is much smarter to also include monthly repayment rate, comparison rate and other loan properties when comparing costs. The fees that may be involved in finance packages include settlement (upfront) fees, ‘special’ one-off fees, early payout or ongoing account-keeping fees. These can be just as significant as interest rate in the total cost of your loan, so it is important you have made your investigations thorough.

Pay-out Penaltie

One very common type of additional fee attached to the majority of loans is a pay-out penalty (retained interest). It corresponds to a slice of your unpaid future interest payments and can be very expensive. This is a fee levied if you pay out your owed finances early and provides an underhand way for companies to ensure that they squeeze as much out of you as possible.

Comparison Rates & Monthly Repayments

In accounting for all costs (interest and fees), there are two major ways of comparing rates. They are the monthly repayment rate and the comparison rate. The more basic one is the monthly repayment rate, which very simply calculates the overall cost per month for each quote. However, it does not include comparisons of up-front or pay-out penalties, so for a broader perspective of costs it is advisable to use the comparison rate too. This analyses the interest rate, while taking into account any additional or one-off fees as well.

Flexibility

The importance of flexibility depends on your own circumstances, but you will find some financiers stricter than others. If you want a higher residual value or have a slightly dubious credit history, you might find yourself stuck. In this situation, it is often beneficial to seek advice from a broker, who will likely have the experience and knowledge to find you a higher residual rate or negotiate your application if you’re having any trouble.

SUBMITTING YOUR APPLICATION AND GETTING APPROVAL

Information Included

After choosing which offer you wish to pursue, you will then need to complete an application process to obtain your loan. When applying for the loan most brokers need to determine your employment situation, your personal/contact details, which vehicle you wish to purchase, any assets you possess and the exact amount you need to borrow. Along with this you will need to prove the reliability of information you are giving, so most companies also require various documents that include proof of identity, proof of income, privacy consent form and sometimes proof of property ownership.

Loan Approval

When considering your loan application, financiers primarily consider: the cost of the vehicle, your asset holdings, your ability to repay the loan and previous financial obligations. The general standard that they expect from applicants depends entirely on the financial institute. Some will not accept anyone who poses any financial risk, while others may be more flexible in this regard (but most likely will have higher costs attached). In general, you will likely receive a response within a few hours, allowing you to approach you second choice if refused.

Settling the Finance

Settling of the finance is the final stage of obtaining a car loan; this occurs after you’ve signed the car sale contract, and involves providing the lender with the last bits of relevant paperwork and the signing of your contract. The major document that you personally need to provide during this last stage is the tax invoice, though some lenders may also insist on a vehicle inspection as well. After receiving this, the financier will then prepare the final settlement document which contains information on the car, the repayment and the length of the loan. These will then be sent to you and you will need to sign and return them along with an Insurance Certificate of Currency (detailing your car insurance policy). This signifies the last component in obtaining your loan and you are now free to drive your car off into the sunset.