For those planning a new motor vehicle purchase with finance, one of the immediate reactions to the RBA decision to raise the cash rate was possibly ‘oh no, that means I’ll need to pay more in repayments on my new car loan’. A reaction which could mean further annoyance for those who have been on wait lists for delivery of their new vehicle only to now face the prospect of having to pay more than they anticipated in loan repayments due to the interest rate rise.
But that doesn’t necessarily or in all instances have to be the case. New car buyers can look at varying different aspects of a car loan to ensure a rate hike does not increase their target finance repayments. For those with existing fixed interest rate car finance, the repayments would not be impacted by a lender rate rise during their existing finance term. This discussion focuses on new motor vehicle finance.
Interest rates do attract the major attention in discussions and decisions around all types of finance including car loans. That makes sense as the interest rate does determine the overall total cost of the loan. But it may not be the figure that has the most significance to all those seeking motor vehicle finance.
While acquiring the cheapest interest rate car loan for business use is the major focus for us as motor vehicle finance lenders, the focus for many new car buyers will be the monthly finance repayment figure. The greater relevance for many buyers is ensuring the repayment figure works with their household budgets or business cash flow. An issue which has become even more important with the recent surge in costs of living.
We discuss the ways that new car loan applicants can consider varying different elements of the loan to achieve that target repayment level that will work with their other expenses.
Achieving Cheapest Car Loan Interest Rates
Before getting into a discussion of the loan elements, we need to stress that achieving the lowest interest rate for a car loan is key to a cheap car loan. The rate determines the total interest payable over the full term and hence the overall cost of the finance.
A few key points to keep in mind when considering how and from which lender to source car finance:-
- The lowest rates advertised by lenders will, unless otherwise indicated, be for applicants with a good credit rating. Keeping a credit score in the good range can be incredibly important to being offered the cheapest interest rate loan.
- Car finance rates will vary across the lending market. A broker-style lender like Jade Car Loans has the ability to cover off on a vast section of the market quickly, easily and professionally. Saving you time and effort and without risk to impacting your credit score.
- Loan applications can be reported to Credit Reporting Agencies for inclusion on a Credit Report. Making multiple applications for the same loan may appear negatively on the report.
- ‘Too good to be true’ interest rate loans may conceal costly conditions. No interest rate loans should especially be approached with exceptional caution. Often these types of offers may have that zero rate only for an introductory or initial period. After that time the rate may jump to an exorbitant level. These types of loans may also have higher fees and charges.
- Fixed interest rate car finance typically means that rate is locked in for the entire loan term and won’t change with any rises in the cash rate and lender rates. A variable interest rate loan can increase in response to changes in rates by the RBA and then lenders.
Term of the Loan
Now to a discussion of how the structure of a loan can be varied to achieve the target repayment amount. One aspect is the loan term. That is the number of years or months to repay the loan. A longer loan term will result in lower monthly repayments but a greater total interest payable. A shorter loan term will increase the monthly repayment but result in less interest payable over the full loan term.
To see how this may work for your loan, calculate business car repayments. Simply vary the number of years/months while keeping all other data constant and see how the estimated monthly repayment changes.
Be mindful that individual lenders can have a say in what loan terms they will approve. That is a key aspect that your Jade Car Loans consultant can negotiate with our lenders to achieve.
Deposit or No Deposit?
The total loan amount does of course determine the monthly repayments, in conjunction with the interest rate and the loan term. To achieve the target repayment figure, the decision around deposit or no deposit can arise.
We offer no deposit finance for many applicants and this provides the opportunity to include the full purchase price of the vehicle into the loan. That can be attractive to many buyers especially business operators in regard to conserving cash flow and possible tax benefits.
But where the objective is to achieve a lower monthly car loan repayment, buyers may decide to use existing funds to pay a deposit to the dealer and thus reduce the total loan amount.
Business Finance Balloon
Business motor vehicle finance includes the option to include a balloon for Car financing for sole trader or residual for Vehicle Leasing. This option enables the borrower to vary the repayment amount by varying the balloon/residual.
Be mindful of:-
- Lenders may have limits to what they will approve.
- The value of the vehicle at the end of the finance term when the balloon/residual is due for payment. This may impact the resale or trade-in outcome if upgrading at that point.
Getting the Most from a Motor Vehicle Finance Calculator
So there are a number of ways that new car buyers can explore to ensure their car loan repayments don’t necessarily increase when interest rates rise due to RBA decisions. Using a car loan calculator prior to applying for finance can be extremely helpful in forming how a buyer would like their car loan structured.
With the preferred combination of loan amount, loan term and possible balloon decided, you will be ready to brief your Jade Car Loans consultant as to how you would like your finance structured.
Contact Jade Car Loans 1300 000 003 to discuss sourcing motor vehicle finance which is individually sourced and negotiated to meet your requirements.
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.