Shopping around for a car? Dipping into your savings account is one option, but if you have decided to borrow money to help you purchase your new ride, you may like to consider what type of loan is going to suit you best: a car loan, personal loan, or a mortgage redraw? And importantly – how much is that purchase price likely to cost you over time? Our car loan calculator can help.

Please Note: The calculations on this page do not take into account all fees and charges. The results provided by this calculator are an estimate only, and should not be relied on for the purpose of making a decision in relation to a loan. Interest rates and other costs can change over time, affecting the total cost of the loan. Consider seeking financial advice from a qualified adviser before applying for any credit product.

Things to consider before taking out a loan for a car

A car loan is a loan taken out for the purpose of buying a motor vehicle such as a car, ute, 4WD, motorbike, or other road vehicle. A car loan can also be called a vehicle loan. If you don’t have enough in savings to afford to buy a car but you can afford to repay a loan in monthly instalments, one option you might consider is using a car loan to finance your new wheels. The cost of a car loan depends on factors such as how much you borrow, how long the loan term is, and the interest rate and fees charged on the loan.

Our car loan repayment calculator (above) could help you determine how high you can afford to go in terms of the car’s purchase price. Here are some important factors that you might like to consider before applying for one:

How much can you afford to make in repayments?

You may have some idea of how much you can afford to borrow, but are you sure that you will be able to afford the repayments? One way to find out is to write a comprehensive personal budget and use that to assess if you can accommodate the loan repayments. Don’t forget to take into account any potential hiccups, such as a future increase in living expenses, a change in interest rates or unpaid leave you might have to take down the track.

How long do you want the loan for?

One factor to consider carefully is the term of the car loan you choose. Due to the effect of compounding interest, the longer your loan term, the longer it will take you to pay off and the more expensive the lifetime cost of your loan will be.

By way of example, the table below outlines the difference in overall cost of a hypothetical $10,000 loan at an interest rate of 12%, with a comparative loan term of five, seven and 10 years:

Loan amount Loan term Interest rate Monthly repayment Lifetime cost
$10,000 5 years 12.00% $222 $13,347
$10,000 7 years 12.00% $177 $14,828
$10,000 10 years 12.00% $143 $17,217

→ Learn more: How Do Car Loans Work?

Find out how much insurance will cost

While it’s not possible to actually insure a car before you buy it, you might like to consider comparing car insurance when working out your car budget. This way, you may be able to pre-select a great-value policy for your needs and organise cover online or over the phone before you jump behind the wheel. While it’s always important to think about insurance for your vehicle, it’s perhaps even more so if you have borrowed money to buy it. Otherwise, in a worst-case scenario you could end up with a written-off car and a large debt.

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Check your credit rating

Your credit rating or credit score is something that your financial institution will look at if you apply for a car loan, in order to assess whether or not you are a good financial risk. Before you apply for a loan, it could be a good idea to check your credit score, to help ensure there are no surprises.

→ Credit Score – Get Your Free Report In Just Minutes with Canstar

Have your paperwork ready to go

Before you apply for a loan, your financial institution may want you to provide proof of income (via a payslip or tax return), as well as copies of current bank statements and personal identification (such as a passport and driver’s licence). Some lenders allow car buyers to obtain pre-approval for a loan, so they know how much they can spend on a car before they go shopping.

Compare Car Loans with Canstar

 

Author: Nina Tovey

Nina is the Editor-in-Chief of Canstar, Australia’s biggest financial comparison site. She is responsible for leading the editorial strategy, and works with a team of journalists and SEO specialists to drive traffic through delivering compelling and insightful content to consumers looking for support with their finances. You can follow her on Instagram or Twitter.

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