Not all car loans are created equal and they all have different features and benefits. It is best to understand all these as they can have an impact on your own personal needs. Many lending institutions try and entice the public to focus predominantly on the rate and this is why the media and advertising put this front of mind, and it is in most cases the first question asked by people shopping for a car loan, but there are many other features that would also have a major impact on your car loan.
Whilst still important, as this will have an effect on your repayments, the interest rate needs to be considered alongside all the other features of a car loan that make up your repayment.
Most financial institutions will charge an establishment fee of some sort, and this gets added to your borrowing amount, which can increase your total repayable and periodic instalments. In many cases, there can be multiple upfront fees, especially when dealing with finance brokers or car dealerships.
Many lenders will charge a monthly account keeping fee and can vary from lender to lender, so this needs to be considered when shopping for your next car loan.
If your loan is for more than 50% personal use, this is required to be disclosed on your contract, or the terms and conditions of your car loan. If your loan is for mainly business use, disclosure is not required, and the provider is not required to give you an explanation of the calculations they use. These are often used to keep the upfront interest rate down and can vary from lender to lender. Don’t mistake these for break costs, as these are different.
Unlike early termination fees, break costs will not be a set figure or calculation, but would usually be limited to fixed interest rate car loans. If the lender sells you their money at a certain rate for a certain term, and you don’t meet that full-term, and this has an economic loss to the lender, they can charge you break fees to recoup their economic loss. As these cannot be ascertainable at the time of incepting the contract, they are not spelled out how much they would be, or if there are going to be any. There are financiers that boast their fixed rate car loans have no early penalties, but they still have a break cost, which can end up being more than early termination fees.
It is a great feature to have if the financier allows increased repayments, or lump sum repayments, if the interest is calculated on a daily balance, as this can reduce your loan term and total interest payable. Be careful of low rate car loans that don’t allow you to pay out early, as it could end up costing you more.
You want your financier to be flexible on the loan terms they can offer you, as you want to be able to choose this so your repayments can fit within your own personal budget. Quite often low rate offers will restrict the loan term increasing your repayments making it harder for many to fit this within their budget.
The best way to compare products side by side is with your loan repayment, ensuring this is based on the same loan terms, and the same borrow amount to you excluding upfront fees. This will show you the total amount repayable over the loan term, then you will also need to check the early termination and break cost clauses and the flexibility of how additional and lump sum repayments are treated.
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