Modern man is difficult to imagine life without a car both in large cities, like Sydney, Melbourne or Brisbane and villages. Mobility, which is a car - for many Australians, is a daily necessity, for example, for a trip to work or to bring children to a kindergarten. At the same time, not everyone can afford to allocate family finances for the purchase of a vehicle. We have to use borrowed funds, what is well, in Australia is a large variety of such lenders. Such credit products are provided by banks (ANZ, St. George, Commonwealth bank, RACV, NAB, Suncorp and others), credit unions and financial organizations (Esanda, NRMA, Aussie, IMB, People's choice), brokers and dealers. Also except an installment automobile loan, you can receive financing in the form of leasing or trade-in. You can apply for a used or new car at a private person or a dealer, or even at an auction. The loans can be secured or unsecured with fixed or variable interest rates; each of such a proposal has a lot of parameters to compare. You can apply online, by sending a letter or visiting a branch. How to choose the offer, which suits you best and to increase your chances to get the financing for a car to the maximum even if you have a bad credit score or want no credit check? Bankchart.com.au will help you to take the necessary actions.
Step one. What is a car loan? What types of such loans are provided in Australia?
An automobile loan is a type of personal credit, provided for purchasing a vehicle in the form of an installment loan, or another form of financing, like leasing or trade-in. Unlike credit cards and any purpose unsecured personal loan, the car credit is a more profitable way of a vehicle buy, because it has lower interest rates and more significant sums of credit. On such a loan, the car is a security for the repayment of debt.
Before applying for a car loan, you should choose the automobile firm and its mark in one of the nearest dealer or a private person, manufacturer websites, car auctions or online marketplaces. You should base your choice not only on your preferences and technical characteristics of the machine but also on the basis of your financial possibilities so that you can receive and repay the loan.
You should calculate your budget, cash flow and also loan repayments by using a car loan calculator on our site or Australian banks sites. At that not only the car costs and bank tariffs should be considered, but also the expenses of having and servicing a car, like registration and road fees, insurance cover, gasoline, repairs, etc.
To lower your loan sum, you can choose a used car instead of a new one. But be ready, that fewer banks offer this credit product, the interest rates are higher, and the car restrictions may be set. Also, you should check the second-hand vehicle in the Australian Government's Personal Property Securities Register to be sure that it is not pledged as collateral.
After this, you may apply for the loan in commercial banks, credit unions, private lenders or brokers, other financial organizations or vehicle manufacturers and their dealers. It is essential to consider both the car price and the loan conditions because sometimes car sellers can increase the vehicle price to decrease the loan interest rate with its financial partner. At the same time, it is worth noting that such a scheme activity was partly restricted from 1 November 2018, now the rate in a bank and a car shop must be equal. Besides, Sellers often propose extra products, like extended insurance cover, which increases the deal value.
Who better to apply for a loan depends on each individual case, and each option has its advantages and disadvantages. For example, dealer financing is one of the simplest ways. As they are interested in selling cars, they will help you to fill the application form and to choose the credit proposal and its options, which are most likely to be approved, even if you have a bad credit history and a poor loan score.
But, in this case, only a reliable authorized dealer is suitable, because it ultimately controls the process of applying for the loan and receiving financing and may abuse it. For example, it can offer you not the most favourable conditions if the financial partner transfers him a commission for each deal. The similar situation occurs when you turn to a credit broker.
By applying to a bank, credit union or other financial institution, you get a greater choice in selecting a partner and lending options as compared to a dealer. But you must be prepared, that the process will take more time and effort. In particular, you will need to fill several forms and provide some documents to the bank by yourself.
A novated car lease can lower your loan expenditures, and provide you with some additional services, for example, technical servicing and road assisting. Such a decrease is provided because you don't pay the whole value of the car, only the part, and the lessor will take the vehicle away at the end of the hire leasing agreement.
A trade-in financing appears when you offer your old car as an advance in the funding of the new one. So, such a scheme lowers the necessary loan size, but in such a case you should do your best to transfer the old car to the dealer at the maximum price. It can depend on the state of the vehicle, demand for the model and your negotiation skills. It is valuable before trading to research the current price of your model on the market.
Peer to peer financing worth highlighting, according to such a scheme a loan will be provided by a private person, who has free money to invest. Such creditors and potential clients are usually connected with a particular site or an application.
Financial organizations may offer you proposals with fixed or variable rates. On fixed rate loan the strake is constant during the whole period of financing, so you know the size of your periodic repayment. But such loans usually have early exit commissions, so you should choose the loan term correctly. Opposite, the variable rate fluctuates with the prime rate on the Australian financial market, so you benefit if it decreases and suffers, when it grows up. Such loans usually have no restrictions on early repayment.
Also, balloon and flexible payments can be set. According to a balloon scheme, you can lower your periodic repayments, but in such a case you are to pay off a large sum of money at the end of the loan period. Flexible loan offers you to make additional redemptions at your will, but such the possibility can be restricted by the bank.
Step two. How to compare car loans?
Before making an application for vehicle credit, it is important to learn more about the loan and understand the finance features, like:
An interest rate is the essential price parameter of a car loan and estimates the level of your periodic repayments to the financial organization. Following our survey, it can range from 5,29% to 13,56%, here is our centerlink on car loans.
Sometimes banks point in their advertising proposals the so-called comparison interest rate, which shows the credit price and considers not only interest repayments but also credit commissions. The lower the indicator is, the smaller will be your monthly payment.
One-time administrative commissions are widely used and vary from 90 to 395 AUD. If you apply for the vehicle finance with a dealer or a broker, additional servicing fees also may be charged.
Periodic fees are not often used by Australian banks but can increase loan expenditures significantly. Their size ranges from 5 to 12 AUD per month.
Early exit commission can vary from 20 to 300 AUD and, as usual, is charged on fixed interest rate loans, but also can be set for other types of personal credit.
Car insurance is obliged for secured loans, but sometimes financial organizations also can require a client’s life insurance and others. All these payments increase loan costs.
With the term choice, you can manage your monthly loan payment size. The larger it is, the lower is your monthly transfer. But, do not abuse this feature, because with a higher period your loan expenditures also go up. Australian banks propose car loans for the maximum term from 5 to 8 years.
Initial advance is another important non-price parameter of automobile loans. The more you deposit, the less will be your credit expenditures.
From other important parameters of vehicle loans you should ask the lender manager the following: requirements to a potential client and the purchasing car, redraw facility, the frequency of repayment, credit holidays possibility, a balloon sum, interest rate type and others.
Step three. What is a pre-approval and how to pass it?
If you want to know exactly how much money you can borrow and whether a financial organization will provide you with a loan at all, before seeking for a car, you can pass a pre-approval procedure. After such an operation, you will not get financing but will know the car price and credit parameters, which you can count on negotiations with a dealer or a lender.
In short, the benefits of a pre-approval are as follows:
- Get certainty that you can purchase the car you want
- The credit organization appraise your financial situations and the loan possibility, and you get to know what sum of periodic repayments you are to transfer in the future
- You will be more mobile in negotiations on the price of the car
But this option also has limitations, like:
- Validity restrictions – a pre-approval usually stands good only for 1-3 months, after then you have to pass another one
- Not every financial organization has a pre-approval option
Pre-approval can be conditional and unconditional. According to the first one, the credit organization estimates only a maximum sum of the loan, you can take. As part of the unconditional pre-approval, you must choose the car which you are going to buy and pass all its parameters to the lender. After that, it determines whether it is possible to provide you with a car loan at the pointed dealer, of the car firm and mark.
Before a pre-approval you should:
- Decide on the choice of car: its manufacturer, brand, colour, engine size, gearbox type and other technical features
- Estimate how much money you can send monthly to pay off the future debt
- Make a test of the desired machine to determine your choice finally
- Compare the price of a car in several car dealerships or private parties
- Determine whether you meet the requirements of a financial institution, like to be 18 years old or higher, have Australian citizenship, gain regular income and others
To get a pre-approval for automobile finance, you should:
- Receive a statement of your credit rating
- Check whether you will be able to provide all the required documents
- Compare vehicle loans proposals and choose several, which suit you most
- Get in touch with the selected financial companies, which have a pre-approval option
- Choose the loan parameters, like its term, rate kind, repayment frequency, initial advance and others
Very often a pre-approval can be passed online, and it can take only a few minutes to fill in the application.
Step four. How to apply for a car loan?
If you have already passed a pre-approval, the approval process for you will be a straightforward deal. All you need to do is to confirm your decision and the chosen credit parameters, take the originals of the necessary documents, and to sign a purchase and loan contracts.
But, if you didn’t, you have to start from the beginning and:
- Take your credit score report to appreciate the possibility of the loan approval. For example, it can be done at one of the following companies:
- Dun & Bradstreet: 1300-734-806
- Equifax: 1300-762-207
- Experian: 1300-783-684
- Prepare such documents, which can be required by the bank:
- personal identification documents: a driver's license, passport, pensioner's ID
- documents confirming income and expenses: tax returns, bank statements, payslips, current rents and bills, statements from savings and investment accounts
- others: current account and card statements, the vehicle specification, etc.
Also, the financial organization may ask contacts of your director, landlord and current creditors to check your information.
- Fill out an application for credit at the dealer, broker, branch or on the site online.
Online form maybe is the simplest way, because it does not require a visit to a financial institution. Copies of the documents can be sent online. The approval process in such a case can take only several hours and, also you can assign multiple applications to different companies at once to increase your chances.
After filing the application and providing all the required documents, the lender will take some time to make the decision of the loan granting. How much will it take depends on the lender and the way of applying, but usually holds 1-3 days. If the decision is affirmative, the obligee sends money to the auto shop or individual, after what you can take the car.
Step five. How to get most from a car loan?
To lower your car loan repayment costs, you can:
1) Before applying, do your best to improve your credit score to increase the possibility of the affirmative decision and to get the loan under more favorable conditions. For this, you may open a savings account and deposit it regularly at least in small amounts, always pay your invoices on time, etc.
2) When applying for car finance, study carefully the draft loan agreement and find out all the parameters of the future loan. Use credit calculators and financial aggregator sites. Employ for liken a comparative rate, which takes into account not only interest rates but also loan commission fees. Avoid proposals with monthly fees, and choose the most profitable proposal
3) If you repay periodic sums in time, your credit score will increase. So the lower will be the interest rate, which financial organizations may offer you. In this way, after some period of time, you can try to refinance your vehicle loan under more profitable conditions
4) Try to lower the loan approval sum, when applying, for example, using a trade-in scheme of your old automobile. Or deposit the maximum initial advance, which you can afford if you don’t have such a possibility
5) If it is possible, don’t use a balloon scheme. Although your monthly payment will be less in this case, you will pay more interest to the bank since the amount you owe to the bank will be higher in the middle because of the final payment. The same applies to the increase in the loan term
6) To never miss an oblige payment, you may establish automatic redemptions from your transaction accounts or debit card to the car credit. Try to repay the loan in higher amounts than required, if your credit has not early exit commissions
7) If you start having financial difficulties, you should turn to your credit manager as soon as it is possible to avoid fines and a decrease in your credit score. But, if you lender violates the boundaries of what is permitted or misleading, you may complain to the independent authorities, like Credit and Investments Ombudsman Ltd and Financial Ombudsman Service (call 1300-780-808) or ASIC (1300-300-630)
Step 6. How to get a vehicle loan with a bad credit score or no check?
As a car loan is usually secured credit, financial organizations are more eager to provide financing even to persons with a bad credit rating or who want no credit check or guaranteed approval.
Unfortunately, such kind of vehicle loans is a field of activity of unfair creditors. So, you should research the lenders before applying, for example, to browse the sites and forums with customer reviews that have already received car loans from the lenders you are interested in.
If you have a bad credit rating, to purchase a car, except a consumer credit, you can also use a credit card, especially if you are buying a used automobile or to wait some period, when bad signs on the credit file have vanished.
Having decided to buy a car on credit, you must thoroughly assess your possibilities, because besides the cost of car maintenance (gasoline, technical servicing and insurance) you will bear interest and commission expenses to the bank. If you can't refuse to buy the vehicle on credit, it is worth taking the time to gather information from several financial organizations and carefully compare all-important lending parameters. You should lend only the minimum amount you need, don’t use a balloon scheme and never miss the minimum repayments. If you have doubts about the creditor’s credibility, you should contact Credit and Investments Ombudsman Ltd and Financial Ombudsman Service or ASIC.