6 Things To Consider Before Applying For A Car Loan

Your first thoughts may be ‘as much as I possibly can’, but this is where you need to give yourself some time to think. Yes, paying a higher percentage of the cost straight up may reduce the length of your contract or monthly fees, but there is no one-size-fits-all answer. Everyone’s financial situation is different, therefore you need to take into consideration how much you can afford to pay during your repayment period. If a larger down payment could lead you to opening additional loans further down the line, you may find yourself even more out of pocket.

Tip: Evaluate your income and expenses for the duration of your contract before signing any documents.

It’s like ripping off a Band-Aid; short and painful but over quickly. If you can afford to take this approach, then it may be the best route to take. But first ask yourself the question – how much can I really afford?

If you’re just scraping through your monthly repayments with little room left for misfortune or an unanticipated bill, you may find yourself walking on thin ice for the next few years. You mustn’t forget the additional costs that come with owning a car, such as fuel, registration updates and services (let alone a dreaded flat tire!). Owning a car doesn’t come without a cost, so be sure to keep your payments within reach.

Tip: Don’t get ahead of yourself by quickly paying off your loan just for the sake of it. Ensure you have assessed your financial situation before making any commitments.

This is probably the most obvious of them all, but you MUST check the amount of interest you will be paying before entering any agreement. Unfortunately, very little in this world comes free, so keeping aware of what fees are coming your way can save a nasty fright. Does your lender charge any extra fees for originating a loan? Will changing the length of your contract alter the amount of interest you pay? Do late fees apply? It may be standard practice for these charges to be in place, but do your research to ensure what you are expected to pay is fair and accurate.

Tip: Don’t be afraid to ask questions before entering into a legally binding agreement.

It’s a hard question to answer because no one knows exactly what their situation will be like in the immediate future, let alone in four years! But before making a big financial commitment such as applying for a car loan, it’s important to think ahead. Sure, a shiny new car sounds like a great idea now, but can you afford the repayments and go on that month-long holiday to Europe next year? Or if you’re a freelancer with an unpredictable income, you may have to think up a budgeting system in order to keep on top of your repayments.

Tip: If you have reason to believe your financial situation could vary considerably over the duration of the contract, perhaps look at an alternative loan or think about postponing your purchase – at least until your future finance is more predictable.

Good question. Imagine finding yourself in a situation where you can pay off your loan, and your lender charges you for it! Some finance lenders may have this fee in place to compensate for the loss of interest they would have earnt over your future repayments. You should always ask before making any additional payments outside of your contract to avoid any unexpected fees and keep a record of everything you do pay.

Tip: When discussing your contract, be sure to ask about prepayment penalties and other hidden costs. It pays to be inquisitive before you commit yourself to any loan.  

Are your alarm bells ringing? I’d listen to them. Some companies lure you in with seemingly attractive deals, but you don’t want to end up in a scenario where you’ve been caught out by a forged company. You should also avoid getting swept up by appealing deals without considering your budget (don’t forget the actual cost of the car!). As tempting as a 0% rate may be, be sure to do the math first.

Tip: Read the fine print, trust your instincts and if in doubt get professional advice.