What is car finance? Your questions answered
Car finance can be a great way to buy the car you need without using all your savings. And it doesn’t need to be difficult. Here are some simple facts which will tell you all you need to know about financing your new set of wheels.
Buying a car is an exciting and often essential step in your life, whether it’s your first car to take you to work, or an upgrade for your growing family.
Many of us simply don’t have spare cash to finance such a major purchase upfront. However, if you’ve got regular income then you can consider car finance as it allows you to pay off the cost of the car over a longer period of time.
Taking out car finance might seem a bit overwhelming, but it doesn’t have to be. Here we’ve explained some of the basics of car finance to help your dreams of a new car become reality. Too easy!
Where to get car finance
You can get finance from a bank, financial institution, credit union or a car dealership. It is your choice.
When you visit a dealer to buy a car, they will talk to you about car finance. Some car finance is attached to a certain manufacturer, while others, such as Power Alliance Finance, will finance many different makes and models from various manufacturers through dealerships.
Personal v business finance
There are different types of car finance depending on how you want to use your car – here’s some information on the typical features of each.
If the new car is for your own use, then a personal car loan is the way to go. All personal car loans are different, but as a general rule the loan is secured against the value of your car. This might mean that the interest rate is lower compared to an unsecured car loan.
Meanwhile, if you’re looking for a new car for your business you might want to consider a business car loan, also known as a chattel mortgage. One feature of these is that the vehicle is owned by your business while it is being paid off. You might also be able to get tax benefits – but you’ll need to talk to your accountant or financial adviser about that.
What to look for
When you go to get a car loan, there’s several variables you have to consider including the interest rate, loan term and repayments.
The car finance provider will charge you interest on the money they lend you, the same as other types of loans like home mortgages.
Some car finance providers, such as Power Alliance Finance, offer a customised interest rate. Ours is calculated using a sophisticated algorithm. We enter some of your personal details into the program, along with your credit score and other relevant factors determined by us, such as loan type and property ownership.
Once we’ve got you a rate, we provide you that same rate for the duration of your loan so you always know what your loan repayments are weekly or monthly.
Meanwhile, the length of loan, or loan term, refers to how long you’ve got before you’ve paid it off. How long your loan last varies depending on who’s providing finance. With Power Alliance Finance, you can choose terms ranging from one to seven years.
It is important to note that interest is charged over the loan term so the longer your loan the more interest you will pay.
And check with your provider about repayment frequency – it may be monthly, weekly or fortnightly and you may or may not be able to choose. For example, at Power Alliance Finance, we allow you to decide your repayment frequency as an added benefit (weekly, fortnightly or monthly).
You may also be able to access other features, depending your car finance provider. Examples include a balloon payment, which means you pay less every month but have a larger payment at the end of your loan – this will result in more interest across the loan. Another is an upfront deposit which may allow you to reduce your regular payment amounts.
Other important facts
Your car finance provider might also have other fees and charges, so it’s important to make sure they are transparent about all of these. If in doubt, ask.
A comparison rate can help you work out the trust cost of the loan. It includes the interest rate, as well as most fees and charges. Also as most car finance institutions offer secured car loans – this just means that the value of the car is used to guarantee your repayments. If you’re going through financial hardship, such as losing your job, then it’s a good idea to contact your car finance provider. Power Alliance Finance is committed to trying to assist customers who are experiencing financial hardship.
If you want to sell your car, you will have to pay your loan back once you’ve sold. Contact your car finance provider to find out how much you will have to pay back when you sell.
The information provided on this website by Power Alliance Finance, a division of Australian Alliance Automotive Finance, ABN 63 002 407 703, Australian Credit Licence 513747 is of a general nature and for information only. Nothing on this website constitutes or should be considered to constitute legal, taxation or financial advice. Before making a decision about any of the products and services featured on this website, you should consult with your own independent legal, taxation and financial advisors, who can advise you about your personal circumstances.