So you’ve decided to buy a car, and you’re pretty sure that financing is the best approach to get the ride of your dreams on the road. The only problem is you have no experience with car loans or borrowing, and the whole process seems more than a little daunting. Well, fear not, because help is at hand in the form of this handy list of the most frequently asked questions relating to car loans.
So if you don’t know your balloon payment from your early termination fee, then we suggest you read on.
But before we get to the questions, we must point out that with so many car finance products on the market these days, it pays to know the basics. And while some of the answers below may seem like common sense, it’s best to be sure you know everything before making any major decisions.
And remember, when it comes to matters of finance, there are no silly questions.
What is a car loan?
A car loan is one of the most straightforward forms of car finance on the market. It simply involves your financier lending you the money to buy a car. You then make monthly repayments to pay off the loan.
Do I have to pay a deposit?
Generally speaking, most lenders would prefer if you pay some form of a deposit at the beginning of your loan term as this allows them to offer you more affordable monthly payments as you borrow less. However, this is often negotiable with your financier.
What’s a balloon payment?
A balloon payment is kind of like a deposit that is moved to the end of your loan term. Once you finish with your monthly or weekly payments, you make that one final balloon payment, and the car is yours. It’s often a percentage of the initial purchase price of the car and some people use a larger balloon payment to reduce their monthly payments.
What’s residual value?
It might sound like a fancy financial term, and we suppose it kind of is. But this is just another way to say the amount owed to the financier at the end of the term or in other words, the balloon payment.
How do I know my interest rate is competitive?
There are two ways you can figure this out.
First, you can do your research by calling various lenders, dropping into your bank, and perhaps even calling the dealership to find out the average interest rates on the market.
The second option (and our favorite, of course) is to put your trust in a finance broker who will do all of the above for you and give you some advice on which options best suit your needs.
Can I choose to pay weekly?
Yes, there are many lenders that will offer you the option of paying weekly, fortnightly, or monthly. Ideally, you’ll match your payment frequency to that of your wages as it makes your finances much easier to manage.
What if I want to pay my loan early?
This is no problem at all, but you need to be aware of early termination or exit fees. This is why you must read the fine print of your loan details. Some lenders have quite significant fees which may discourage you from paying off early. But with Stratton car loans we offer a unique loyalty bonus that allows you to pay off your loan with no fees (we pay them) once you take out another loan with us.
Should I choose a variable or fixed rate?
We could sing the praises of both options right here and now but the truth is that choosing a fixed or variable rate is a highly personal choice. We simply couldn’t advise you one way or the other without having a chat with you about your current financial status.
There’s no doubt that, if you decide to opt for a car loan, you’ll have more questions. However, as we just mentioned with regards to variable and fixed rates, the answers will depend on your circumstances. So pick up the phone and talk to your broker and remember what we said earlier. When it comes to finance, there are no silly questions.
