When seeking car finance there are many aspects of the loan for buyers to consider and make decisions around. The lender, the type of loan for business buyers, sourcing the cheapest interest rate car loan, what the repayments will be and the car finance term. All these factors can interact with each other to impact the overall structure and cost of the motor vehicle finance deal. Focussing on one element only may be overlooking how that impacts another.
In this buying tips article, Jade Car Loans explains what buyers should consider to achieve a workable car finance term when sourcing a motor vehicle loan.
Car Loan Terms: General Info
The term of a loan is the number of years the borrower has to repay the loan. Some lenders represent loan terms in years and others in months. While the longer one may have to repay a loan the better that may not necessarily deliver the best outcome overall.
Loan applicants can request the car loan term that they would prefer but the lender will have a say as to what term they will approve. Lenders would consider the request term regarding the repayment it generates and the applicant’s ability to repay that amount as part of their risk assessment. They would also consider the age and condition of the vehicle in the case of used cars.
Jade Car Loans offers ‘up to 7 years on car loans, but all loans are subject to individual application assessments and of course lender approval. As we are accredited with a vast number and range of banks and lenders, our consultants can quickly match our customers with the lender that will best suit their requirements.
Factors for buyers to consider in pursuit of the ideal car loan term would include:
- Age and value of the vehicle: both lender and borrower would not typically want the value of the vehicle to exceed the loan amount owed in the later stages of a long term loan. Using a car valuation resource such as the Red Book may assist in estimating a vehicle’s value.
- Anticipated re-sale timeframe: Break fees apply to ending a loan term early. So if the buyer plans to sell/trade the car in the short term and avoid break fees, matching the loan term with the resale timing would be advisable.
- The monthly repayments that the term results in: In general, the shorter the loan term the larger the monthly repayments and the longer the loan term the lower the repayments. If keeping repayments within a target range is the priority, then the term could be negotiated to best suit.
- The interest rate: Commercial car loan interest rates are referenced on a per annum base. So it would follow that the longer the funds are borrowed the greater the total interest payable. So sourcing the cheapest interest rate is always important. The RBA sets the official cash rate which lenders use as a basis from which to set their lending rates which vary across the market.
- The loan term agreed to by lenders on new and used cars can differ: this refers to the initial point in this list – the age and condition of the vehicle and the projected value of the vehicle at the end of the loan term.
Business Vehicle Finance Terms
Business operators seeking finance for vehicles to use in their business are usually seeking cost-effective finance. This can mean achieving the ideal finance term that delivers a repayment amount that works with the cash flow.
Business finance products include the option for a balloon or residual. This is a percentage of the original loan amount which is set aside for payment at the end of the finance term. It is due in full after the last monthly repayment is finalised.
Varying both the balloon and the term can change the repayment amount. Use our Business car finance calculator to see exactly how these variations would work with your intended purchase.
A larger balloon results in lower monthly repayments and vice versa when the term is unchanged. But by varying the loan term and setting the balloon at a lower percentage may also deliver an attractive outcome.
As mentioned above, we can achieve up to 7 year terms for new business vehicle purchases and depending on the usage and wear and tear on the vehicle, this may be an attractive option for your purchase.
Personal Car Loan Terms
Requesting a longer term for a Personal Secured Car Loan can make more expensive cars more affordable. A longer term reduces the monthly car loan repayments. However, lenders will be assessing each application regarding the ability of the applicant to repay the loan.
Issues to keep in mind are particularly how much the car will be worth in that many years (the loan term requested) ahead. This will depend on depreciation forecasts.
As mentioned earlier in this piece, if you plan to change cars in say 4 years, then requesting a loan term of 6-7 years may cost you in break fees. If reselling at say the 4 year mark of a 6 year car loan would entail ending the loan term early break fees could apply. In this example, if you plan to upgrade your car in 4 years, then by requesting a 4 year loan term the cost of break fees and any other payout costs could be averted.
Achieving that Optimum Loan Term
From the points raised in this article, car buyers should better appreciate and understand the factors involved in car finance and the outcomes that result in different loan terms. There may be a lot of information to consider but Jade Car Loans can assist with the details. Our Jade consultants handle the finance process for our customers and negotiate with our lenders to achieve the ideal outcome that meets the approval of both the lender and the borrower.
Before applying for a car loan, use our car loan calculators to get an idea of the loan term that would deliver the optimum motor vehicle finance for your requirements.
Contact Jade Car Loans on 1300 000 003 to discuss achieving your preferred car loan term
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.