How Does Car Finance Work



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    How does car finance work?

    In theory, car finance is a simple concept. You need to buy a vehicle. But you don’t have enough money. So you get car finance, or a car loan, from a lender.

    In practice, though, car finance is more complicated.

    That’s because there are dozens of car finance providers offering hundreds of different car loan products – so which should you choose? Also, each car loan may include a range of options for you to evaluate. Another complication is there’s no guarantee your car loan application will be approved.

    That’s why it can be a great idea to get expert assistance. An experienced and successful car finance broker, like National Loans, will help you:

    • Identify the best car loan for your situation
    • Submit the application

    Hold your hand through the process

    The key components of a car loan

    how does car finance work

    Here are the 12 key components to be aware of when you get car finance:

    • Lender – this could be a big four bank, a regional bank or a non-bank lender
    • Security – car loans can be secured (collateral) or unsecured (no collateral)
    • Deposit – the amount of money you contribute to buying the car
    • Principal – the amount you borrow
    • Interest rate – the cost of borrowing
    • Interest rate type – variable or fixed
    • Repayment frequency – weekly, fortnightly or monthly
    • Loan term – the amount of time you have to pay off the loan
    • Features – e.g. a redraw facility or an extra repayments option
    • Application fees – the upfront cost of setting up the loan
    • Ongoing fees – any recurring charges throughout the life of the loan
    • Balloon payment – a lump sum you might have to pay at the end of the loan

    Don’t worry if this sounds confusing – an expert finance broker like National Loans will explain it all to you in plain English.

    how does car finance work

    What do you need to finance a car loan?

    To finance a car loan, you need to do three things:

    • Provide details of the vehicle you want to buy
    • Prove your identity to the lender
    • Prove you have the ability to repay the loan

    What are your options for a car loan?

    There are three ways you can get car finance:

    • Go direct-to-lender
    • Get dealer finance
    • Use a finance broker

    Going direct-to-lender can seem like a clever option. After all, if you’ve already got a relationship with a bank, they’ll reward your loyalty with a great deal, right? Unfortunately, that’s often not the case. Banks tend to take their existing customers for granted and save their best deals for new customers they’re trying to lure across.

    Getting dealer finance can also seem like a great option. After all, it’s so convenient and the salesperson may offer some sort of inducement. However, there’s a good chance the salesperson’s lender of choice will charge you higher interest rates than one of the other lenders on the market.

    That’s why using a finance broker is the best option for many Australians. A broker will have relationships with a range of banks and non-bank lenders, which means you get a range of options. Also, a broker will hold your hand through the process. As a result, there’s a good chance you’ll get a better loan while doing less work.

    What makes a good car loan?

    A good car loan is one that ticks these three boxes:

    • It helps you solve a problem – you get your car faster than if you had to save 100% of the money
    • It’s affordable – your interest rate is competitive and you can make the repayments
    • It suits your circumstances – you get the features and repayment options you need

    How can you get the best car loan?

    The best car loan is the one that offers the best combination of interest rate, fees, features, repayment options and customer service for your individual situation.

    But with hundreds of car loans to choose from, how do you find the best car loan for you?

    You have two options. You can study all the different lenders and loan products yourself. Or you can consult an expert broker like National Loans, and get them to do the work for you.

    Looking for the best car loan for your situation? Click here for a free online quote. If you want help, please fill in this online form or contact National Loans on 1300 358 358.


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