Securing low rate car finance

A low interest rate is often sighted as one of the most important factors used by consumers when comparing loans. It is important to also realise that there are other factors that are equally if not more important to consider in the loan selection process. Other factors include ability to repay the loan early, ongoing and other hidden charges and fees plus also eligibility criteria of the loan.

What many consumers do not realise is that securing a low rate loan often involves more than simply comparing lender to lender to see who can offer the lowest rate car finance on any chosen vehicle. Often a consumer goes about selecting a loan by firstly finding a vehicle they want and then secondly seeing what finance and on what terms they are able to secure on that vehicle. What many consumers don’t fully understand is that the choice of vehicle plays a very large factor in determining the interest rate.

To give a quick idea (see here for more) of how finance companies price or factor in rate, a finance company essentially makes their profit by charging a mark-up on what their funds cost them. The interest rate is a way in which finance companies are able to price a loan depending on the riskiness of the particular deal.

There are three things most finance companies look at when offering low rate finance. They look at the car, the client and the type of loan that’s being sought – there are numerous factors that increase the finance company eagerness to lend money, and the more eager they are, the lower the rate will be.

Factors that finance companies look for when offering low rate finance (these factors increase a finance companies willingness to lend); Owning or buying of a home (as opposed to renting), or equity in a mortgage. Stability in employment – length of time with the same employer or field of work. Type of employment the individual is in A good financial position including assets owned, liabilities owed etc, any regular savings history, owning of shares, Good previous credit history (revealed through the credit-worthiness of an individual through credit checks i.e. Veda advantage.

Car

Not all vehicles are viewed the same by finance companies, in fact there is a wide difference in how finance companies view the makes and models.

What the finance company looks for is ideally a reliable vehicle that will maintain in working condition over the life of the loan. The logic behind this is that because the finance company takes the loan as security, they want to be sure that their loan is protected.

Finance companies have certain book values for vehicles that they compare the amount of finance against. For this reason it is important to include all optional accessories that will help to increase the cars book value. Buying a good vehicle at a good price increases your chances of receiving low rate finance.

What sort of vehicles are ideal for low rate finance?

Finance companies like newer vehicles, a new vehicle would be ideal. The reason for this is that there is less chance of a mechanical problem with the vehicle because not only is the vehicle newer but it has the added protection of new car warranty. Also, it is more likely the vehicle is being sold at a fair price. Picking up the motoring section of the local paper and looking through the advertisements, or visiting the manufacturers web page reveals the price of most new vehicles. For instance, it is much easier to work out a value for a 2009 Hyundai Accent than it is for a 1995 Toyota Landcruiser.

Ideally, if you want to secure the very best deal on finance (which includes low repayments and flexibility in terms of paying out the loan early) you should look for a car that is less than 4 years old, in good mechanical condition. One way to feel safer that you are buying a quality car is to purchase through a franchised car dealership. Some consumers say to us that they feel that purchasing a vehicle from a dealership costs more, this is not necessarily so. Additionally, car dealers offer a warranty and often spend a considerable amount on repairing a vehicle and bringing it up to a high standard before sale. As with any purchase it is important to do your research and find out what is the best deal for you.