When it comes to buying a car, many Australians understand that this important step proves that money doesn’t grow on trees. Australia is a car-loving nation with 1,182,631 new cars that were purchased in 2017. Data by the Australian Bureau of Statistics revealed that 236,451 that most of these new or used cars were purchased with a car loan. But before you go and get a car loan to finance your wheels there are a few things to consider.
The ongoing costs of car loans
There is no doubt why many Australians would choose a car loan to finance their wheels. It is an affordable option. With the wide market of car loans that are available, consumers can choose a car loan that comes with a low interest rate and flexible repayments that do not break the bank. By comparing loan features along with the interest rate, consumers can drive off with a deal that makes owning a car manageable. However, without considering the ongoing costs that come with a car loan, you could find yourself with a loan that has you paying through the nose.
One of the main ongoing costs that come with a car loan is its interest rates. This affects how much you will be repaying on your car loan. According to the Australian Automobile Association, at the December quarter of 2017 car loan payments were the largest vehicle-related expense for the ‘hypothetical household’ in both capital cities and regional areas. Repayments for Australians were larger than the weekly fuel costs. With the average loan size at $20,000, the type of interest rate that comes with a loan can make it affordable or hell to pay.
Fees and charges
The fees and charges that come with a loan are also a critical aspect that makes or break the affordability of a loan. Before signing anything, it is absolutely crucial that you see and understand the fees and charges that come with a car loan. It is easy to be distracted by the “Affordable” price tag. But once you start adding the stamp duty, establishment fees and the fees and charges that come with it you will soon be surprised at how the amount grows.
The ongoing fees that come with a car loan can be fees such as:
- Monthly account-keeping fees. These are fees that are charged to manage your account.
- Statement fees. The cost you pay to have your statement sent to you.
- Late payment fees. A fee that is charged to any late repayments.
- Origination fees. This can be charged by a lender for processing a new loan.
- Early termination fee. A lender can charge you a fee for paying off your loan early.
According to the Australian Bureau of Statistics, new finance commitments for motor vehicles were at a total value of $2.8 billion by the end of December 2017.
Car loan fees and charges will vary from lender to lender. That is why it is vital that you understand the fees that come with your loan. Although as a nation we are stringent on meeting car loan repayments each month to avoid increased repayments or penalties, there are still a few Australians that fall into arrears. This could be due to various financial reasons. ASIC revealed that there were 2% of consumers that were 30 days in areas of all loans. Only 1% of the Australian population has had their vehicles being repossessed due to arrears.
Things to consider
Whether it is your first time in the car loan market or you have been repaying one for a couple of years, one thing that can benefit everyone is to compare. Understand the fees that come with a loan, and if there are charges that you do not understand you can ask your lender to explain them to you. There are plenty of financial options that you can choose from to finance your car, but when it boils down to choosing, take your time until you find something that you understand and is affordable.