4 things that could spike the cost of your car loan

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on November 25th, 2021       

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Most Australians opt to choose a car loan when it comes to buying their car. Whether you are looking to finance a new or used car a car loan can come in handy. There is also a variety of competitive car loans to hook a good deal, However, there are somethings that you do that can cause your car loan to be more expensive than it should be.

1. Purchasing add-ons that you can get separately

When opting to buy your car at a dealership there are a few things that you need to watch out for. There are things known as aftermarket add-ons that salespeople try to sell to you to increase their sales. Add-ons could be in a form of extended warranties, fabric protection, and paint sealants to list a few. Without comparing quotes elsewhere, you could end up spiking the costs of your car loan to something that is costly.

If the dealership fee that is advertised on the car starts peaking and you are not sure what the additional costs are for it is best to ask. Dealers can add fees official-sounding names and include them in the contract to try close in on a bigger sale, but it is important that you understand what each cost is for or walk away.

2. Not shopping around for a car loan

The type of lender you choose will determine how much you pay for your car loan. The market might have a variety of loans that come with competitive interest rates and terms that are flexible but failing to compare can make you lose out on a deal that is flexible and affordable for you.

Australians are spending less and less time researching a car and a car loan which play a huge factor in how much you will be paying. According to Roy Morgan, only 43% of Australians research a car for six months prior to buying it. Roy Morgan found that it is only when they get closer to signing on a deal does the research increase. This means that they don’t give car hunting enough time.

You could end up paying a hundred or thousands of dollars more over the period of the loan over a car that should have been easily affordable. Always check the interest rates and compare fees before signing on the dotted line.

3. Failing to budget the full costs of owning a car

Searching for the best car loan deal and calculating the full cost of a car is something that doesn’t get many people in an excited frenzy, but it is definitely worth it. By knowing the costs of your car, you could save yourself a lot of financial strain by going the extra mile of owning your car.

According to ASIC, the average car costs in Australia is $27,994. If you add the cost of a car loan and fuel you could be looking at the total average cost of $46,063. A car comes with annual fees for things such as registration, insurance. You need to know if you can handle the ongoing costs like fuel, repairs, and maintenance of the car before you even purchase it. In the end, you might find out that the issue does not lay with the car loan but the car itself.

4. Not negotiating on the purchase price

Everyone wants to find a good deal that doesn’t leave them paying through their nose. However, the mistake comes when you focus on negotiating the monthly repayment costs rather than the purchase price.

It is important to know what you will be paying on your car each month by using a car loan calculator that will help you estimate how much you will be paying on the monthly instalments, but the real bargain comes through driving the purchase costs which determines the overall costs of the car.

The purchase price of a car has a domino effect on your car loan, the type of interest rate that comes with it, and the general up keeping of your car. Knowing how much car you can afford should be kept to your chest while negotiating to get a better deal. By revealing how much you are willing to spend gives your seller room to sweet talk you into a deal that is not worth the value of money you initially wanted to offer.

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