Applying for Car Loans - Useful tips to help Apply for a Car Loan

Applying for Car Loans

If you've done your budget and worked out what amount you can afford to repay on your new car loan, then you are doing well.

Another good step is to arrange your car loan before you walk on to the car yard. This will put you in a good position, not only to negotiate a better deal, but to ensure that you don't get signed up for a car loan that doesn't meet your needs, such as high interest, high fees and inflexibility.

Types of car loans

There are two types of loans you can use to purchase a car loan - an unsecured loan and a secured loan. A car loan is normally a secured loan.

A secured loan allows the lender to take security of the car until the loan is fully paid out. This enables the lender to repossess the car if the borrower cannot repay the loan, as opposed to having nothing if the loan was unsecured.

The benefit to the lender by offering a secured loan is that the interest rate on the loan is typically lower than a comparable unsecured loan.

Choose the loan term that suits you

The length of car loans can vary between one and seven years. Paying off the loan over one year will mean the repayments will be high and the interest expense lower. On the other hand, over seven years the repayments will be considerably lower but the interest cost high.

Find out if the repayments are flexible so you can vary the repayments to suit your own personal circumstances as needed.

Interest rates

The interest rate you are offered will depend upon the bank's criteria. This can include whether the loan is secured or unsecured and your personal credit worthiness. The more credit worthy you are or the greater your ability to repay the loan, the chances are better that you will be able to get a lower interest rate.

This is one of the best reasons to arrange your car loan before finalising which car you wish to buy. You may be offered a loan by the car yard dealer at a much higher rate than you could have gotten by arranging your own loan.

Some lenders will be able to offer you a fixed interest or a variable interest rate. You should consider the length of the loan term and the interest rate environment before deciding. Both options have their benefits and pitfalls.

Lenders will quote an interest rate and a comparison interest rate. The comparison interest rate takes into account a typical loan and factors in the various fees that are payable. You should not only compare the interest rate but the fees involved as well. For example, the repayments for one loan with a lower interest rate may actually be more than a comparable loan with a higher interest rate but lower ongoing fees.

Fees

There are quite a few different types of fees to consider. These generally fall under the following headings. Ask the lender what these are as it will help you decide which loan is more suited to your needs.

Establishment Fee

Commonly lenders will charge a fee to arrange or establish the loan which is usually added to the loan amount.

Ongoing Fees

Most lenders will charge a monthly fee or account keeping fee.

Early Exit Fees

It is very likely that to exit your loan early the lender will charge you a fee to ensure their profit for arranging the loan. You should always ask what the exit fee is and find out if there are any other costs to get out of the loan.

Late Payment Penalties

Like most loans you can be charged penalty fees for making late payments.

Application Process

In order to make an initial assessment the bank will ask for all of your personal and financial details. They should be able to give you an idea immediately on whether your loan will be successful subject to proof of details. Providing that information should only take 10 to 15 minutes and in most cases can be done online.

Working out whether you can afford the loan should take as long as pressing a button as the process will be computerised. Assuming you receive a positive response the next stage will be to prove all of the information that you actually provided.

Documents you will need to provide to the lender

You will need to provide proof of:

• identity
• residence
• employment and income level
• assets
• liabilities

Individual lender requirements will vary when it comes to the level of proof required. This is a list of documents that can help you to provide the level of proof needed:

• Drivers License
• Passport
• Birth certificate
• Credit cards
• ATM cards
• Photo ID cards
• Pay slips or employment contracts showing level of income and time with employer
• Rates notice
• Rent receipts or rental agreement
• Phone bills

Statements from your:

• Bank or savings accounts
• Managed funds
• Term deposits (if applicable)

Statements from your:

• Credit cards
• Personal loans
• Mortgage

If you prepare and gather all of these documents prior to making your car loan application you will be able to speed up the process and potentially get approval within 24 hours. Good luck!

Use our car loan calculator and compare car loans.

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