My Car smart buying and financing

Some car dealerships may suggest that you obtain a car loan through their finance department. This is only one of many options and may not be the most competitive. Banks, finance companies and credit unions all offer car loans. Interest rates, fees and charges can vary considerably and some car loans are significantly more expensive than others. Finding the best value car loan can save you thousands of dollars.

Generally, the credit provider will offer you a secured car loan if you are using the money to buy a car. This means that the credit provider will use your new car as collateral. If you default on repayments, your credit provider has the right to sell your car and retain proceeds up to the amount owing. Credit providers will generally offer significantly lower interest rates for secured loans.

Alternatively, you can apply for an unsecured personal loan. The loan is not directly linked to your car and if you default, the credit provider cannot sell your car without applying to the court for a judgment and property seizure sale order. An unsecured loan generally comes with a higher interest rate, but may be desirable if you do not want your car directly linked to the loan.

1. What is the interest rate? Higher interest rates can significantly increase your repayments.
2. What are the repayments? Can you afford them? Use the repayment estimator and do a budget to work out how much you can afford.
3. Is the interest rate fixed or variable? A fixed interest rate provides certainty of repayments. However, a variable interest rate will provide more flexibility.
4. Is there a balloon payment? Balloon payments are used to make the loan appear more affordable. You may be forced to enter into another loan to pay the balloon payment.
5. What is the length of the loan? Car loans are generally for a period of 2 – 7 years. Generally, the shorter the loan the less interest you will have to pay, although your periodic repayments will be higher.
6. What is the total cost of the loan? Many people are surprised when they add up all the fees, charges and interest.

Credit providers have different lending criteria and you may qualify for a loan with one and not another. Reasons may include insufficient income to service the loan, insecure employment or a dubious credit history. If you have been rejected for a car loan, ask the credit provider why you did not qualify. If it is because of your income or employment, you may have to wait until you earn more or have been in your job longer. If your application for finance was rejected on the basis of negative information on your credit information file, the lender must tell you.

If you have ever applied for credit, it is likely that you have a credit information file that contains your credit history. The information contained in your credit information file will generally be used to assess your loan application.

The information held on your credit information file includes:

• personal details including you name, date of birth, address, employment and driver's licence number;
• applications for credit that you have made over the past 5 years;
• defaults on repayments and bills over the last 5 years (or 7 in the case of serious defaults);
• public information including bankruptcies, court judgments and directorships;

Before listing a default, a credit provider must send a default notice and wait 60 days from the date of default. Only if the arrears remain unpaid can a credit provider list a default. Some credit providers may consider defaults very seriously and refuse a loan application on this basis. Other credit providers may still offer you a loan, however may penalise you with high interest rates.

It is advisable to discuss your application with the credit provider before formally submitting it. If they make you aware that it is unlikely to be successful, it may not be worth submitting. This is because all applications for credit are listed on your credit history and remain there for 5 years. Negative assumptions may be drawn in the future if you have multiple applications for a loan in a short period of time.

It is a good idea to obtain a copy of your credit information file before applying for a car loan.

There are currently 3 main credit reporting agencies that may hold a copy of your credit information file. You are entitled to a free copy of your credit information file every 12 months. To request a copy, contact them at:

Equifax
13 83 32
www.equifax.com.au/personal

Illion
13 23 33
www.illion.com.au/#illion-for-individuals

Experian
1300 783 684
www.experian.com.au