How to get a car loan
Using a car loan to finance your new car comes with many advantages. However, before you apply for one, there are many things you should consider, including deciding between a secured and unsecured loan, where to get your loan and your credit score.
Secured or Unsecured: Which One to Choose?
There are two options for car loans: a secured or unsecured loan. It's important to understand the differences between the two which you can learn about here. At this point, you might think that secured car loans are a much better option than unsecured loans. They are less risky, you can borrow more money, and they come with a lower interest rate. However, there are a few more things you should consider before making your final decision, including your credit score, objectives and financial situation.
To decide which loan will work best for you, you should ask yourself the following questions:
- What kind of car do you want to buy (new, used, cheap, or expensive)?
- How much money are you willing to pay?
- How much can you afford?
- How long should your loan term be?
- Can you afford to lose your car in case of unpaid repayments?
All these questions will help you decide on the type of car loan. However, you should also consider that various lenders offer different interest rates, have varying fees, and come with different requirements.
In most cases, people prefer secured loans to unsecured ones. They have lower rates, meaning you will pay less money in the long run. However, it all depends on your needs and current financial situation. That is why it is crucial always to do your research and ask yourself the right questions.
Where to find a car loan?
As mentioned above, you should take your time looking for the best car loan deal possible. There are many different lenders that provide car loans, and each of them offers a different interest rate and charges various fees. Generally speaking, you can choose between direct lending and dealership financing:
- Direct Lending: If you decide on direct lending, you can compare and choose the best deal from a variety of banks, credit unions, and digital (online) lenders.
- Dealership Financing: Many car dealers offer financing to their customers. This option is incredibly convenient as you can buy and get a loan at the same place.
What Are the Requirements for Applying for a Car Loan?
You cannot walk into a dealership or a bank and demand a car loan straight away. The first thing to do is complete a loan application. Then, the lender you are applying to will ensure your financial details provided in the application meet its requirements and base their decision on that.
To get a car loan in Australia, you need to:
- Be an Australian citizen or permanent resident
- Be at least 18 years old
- Have a good credit history
You will also need to provide the lender with the following information and documents:
- Personal information (name, address, etc.)
- Your ID - usually a passport or driver's licence
- Proof of your income - bank statements or payslips
- Information about your other debts
In short, a lender will want to check whether you are able to afford the repayments on a car loan. Your credit score is used by lenders to help them assess the likelihood that you will repay the loan. he better your credit score, the higher your chances of getting a loan, and at a lower interest rate.
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