Car Loan: The Dos and Don’ts

If there’s one thing we all know when it comes to loan agreements is that the devil is in the details. One mistake or one line you overlook in the loan agreement can lead to you overpaying. So, as cliché as it sounds, you really need to review the agreement thoroughly. That includes checking the fine prints. You also want to make sure that there is no mistake in the contract. Whether intentional or not, it could potentially be very costly to you.

When buying from a dealership, pay attention to the marked up-interest rates as well. If you don’t know what that it is, let us explain. When you borrow a certain amount from your lender, the lender will approve the loan at a certain interest rate. But when the dealership gives you the contract, they will mark up the interest rate. What you need to determine is by how much has the interest rate been increased. Some lenders will cap the markup at a maximum of 2% while others won’t do that. So, if your loan has been approved at an interest rate of 7%, signing a contract with an interest rate of 11% is not such a great idea. Negotiate to have them drop the interest rate, or find a dealership that won’t charge as much.

How to Avoid Overpaying on a Car Loan

Step #1. Ask for the VIN

VIN is short for Vehicle Identification Number. You want to make sure you are getting the right car. So, when reading the agreement check the VIN carefully and ensure it matches the car you are actually getting.

Step #2: Fill in the form carefully

It may sound silly, but even one mistake on the agreement can cost you a lot. Ensure from the get-go that your name is spelled correctly and your address and driver’s license number are right. You don’t want to risk having to do everything from scratch. You might miss out on a perfect deal just because of that. Not to mention the administrative fees the lender and dealership could charge you to correct the mistake if you notice it after signing the contract!

Step #3: Find out what additional fees you will have to pay

Even if the dealership or lender assures you that they don’t charge any fees for, there could very well be other costs associated with the loan, such as the kinds you need to even start the loan.

So, find out from the lender what fees you will have to pay them as well as to the department of motor vehicles. Also, ask them to advise you regarding the taxes you will have to pay. Consider doing this at the start of the process itself, so you can budget accordingly.

Once you’ve confirmed this with your lender, you can now turn to the dealership and ask them about the “out-the-door” price. This will help you determine if there are any other extra fees you will have to pay. And if you do this early one, the comparison you make between one dealership and another will be more accurate. You will also be able to determine legitimate fees from the bogus one from the start, and potentially allowing you to save both on time and money.

Step #4: Check for add-ons

You will able to smoke this one if you follow the tip we ae you at the start of this post. Essentially, some lenders will include products such as extended warranties or gap insurance in the agreement. Some dealers will try to install additional equipment that you didn’t ask for and don’t even need, only so they can charge you for them. If you asked for it, fine. But if you didn’t, then that’s just them trying to get you to sign for higher monthly payment.

How to Get the Best Deal Possible

Most loan agreements contain jargon you do not even understand. But since understanding the loan process, knowing what to look for in an auto loan agreement and knowing what’s in the agreements are keys to ensuring you get what you bargained for, there are a few things you can do.

One of the first things you want to do before even starting the search for the perfect car is getting preapproved. Most experts believe that getting this done first increases your chances of locking in a better interest rate.

The next thing to do is to compare one quote from another. But how will you do this if one loan agreement is completely different from the other? It’s simple. Ask to receive quotes based on the loan length and balance. The closer the term agreements are to each other, the easier it will be for you to compare them. Direct comparison between one loan and another will make finding the best offer easier too.

Getting a Personal Loan in Australia – Part 2 of 2

This blog is Part 2 in a 2-part series. In the first part, we mentioned all the types of personal loans that may be available to you. This post will tackle the application process so you can increase your chances of your getting your loan request approved. We’ll also explain how you can ensure that you don’t pay more than you need to. If you missed Part 1, check it out here.

Getting a Good Interest Rate for a Personal Loan

As mentioned in the first blog, there are seven types of personal loan you can apply for. In addition to allowing consumers to finance large purchases, this type of credit can be used to consolidate high-interest debt from credit cards and other loans or debts. Since most personal loans offer lower interest rates than credit cards and installment payments, a personal loan can lower your monthly payments.

Hence, to really get good interest rate, evaluate the following before taking on a personal loan:

1. The principal of the loan

This is the amount you plan on borrowing and the amount on which the interest will be calculated. This amount will be divided into equal monthly payments. These payments are called principal payments because it will go towards paying the total amount that is owed.

2. The interest rates

As with any type of loan, you will have to pay monthly interest charges. This charge will be separated from the principal and you will be able to see which part of your monthly payment is used to pay the interest and which part is used to pay off the principal. You will want to find an institution that offers competitive interest rates on personal loans. But when shopping around, remember that the more your credit history is pulled by lenders, the more hard inquiries will show on your record. Hard inquiries can negatively impact your credit score.

3. The annual percentage rates

The annual percentage rate, or APR, represents the actual yearly cost of funds over the total cost of your loan. It includes the interest rate, potential broker fees, and any lender fees over the term of a loan. This will also impact the total amount you will owe to the bank or the lender.

4. The loan terms

The loan term can be defined in two ways. It can either mean the length of time that you have to repay the loan or mean the number of installments needed to pay off the loan. Sometimes, a short loan term means paying less in terms of interest.

Hence, for good interest rates, you want to borrow only the amount you will really need. The higher the amount you borrow, the higher the interest will be, and the greater the chances of having a longer loan term.

You can also decide by which year you want to repay the totality of the amount borrowed and calculate your monthly repayment according to that deadline. If you can afford to pay more, do it. The shorter the loan term, the less the interest and the annual percentage rate.

Applying for a Personal Loan

Whether you are an existing customer or not, lenders and banks will require a list of documents to verify your identity, residential address, income, employment, and personal finance details.

1. Identity verification

Below is a list of items that can serve as proof of your identity. You’ll usually be required to produce two items for identity verification.

  • Current driver’s licence
  • Learner’s licence
  • Passport
  • Australian birth certificate
  • Australian citizenship certificate
  • Australian marriage certificate
  • Proof of age card
  • National Identity Card
  • Pension card or health care card
  • Department of Veterans pension card
  • Australian higher education student card
  • Australian Public Service employee ID card

2. Residential address verification

Documents that you may require include utility bills, mobile phone bills and bank statements. The proof of address you will submit must

  1. must not be older than 3 months
  2. must show your name
  3. must clearly show your residential address

Additionally, a utility bill will only be valid if it has been issued by a Local Government or utility provider.

3. Income and employment verification

The list of documents for this verification will depend on the source of your income.

i) If you are an employee:

  • Latest three month’s salary slips
  • Annual salary after tax deductions
  • Bank statements (where salary is credited) for the last three months

ii) If you are self-employed:

  • The tax returns from the last 1 or 2 years
  • Your Notice of Assessment (issued within the last Financial Year)
  • Business bank statements for the last three months
  • Proof of continuity of business

iii) Rental income

  • The tax returns from the last 1 or 2 years
  • Your Notice of Assessment (issued within the last Financial Year)
  • Business bank statements for the last three months

4. Other financial information

You may also have to submit:

  • Credit card statements
  • Loan statements if you have current loan accounts
  • Information about your assets
  • An estimation of your current expenses

Lending money comes with a lot of risks. Banks and lenders require all this information to evaluate any potential risk of the borrower defaulting on their loan obligation. Hopefully, this 2-part series has been helpful to you! Good luck with your application!