Car Loans And Finance Options For All Situations

A car is generally one of the biggest purchases you will make outside of a home. The problem for many low income earners is saving up the initial deposit or enough to buy a car out right. You may need to borrow money and depending on what type of financing you take on; you could end up paying your vehicle off for a very long time. The interest repayments may also be in the thousands. This is why it’s important for lower income earners to make a good financial decision when it comes to purchasing a new vehicle.

The below detail will assist in:

• Help you find responsible low rate car loans
• Understand different loan types (very important)
• How to avoid unnecessary expenses (which will put you in more debt)
• Understanding affordability
• Avoid purchasing a lemon
• Where to get help if you enter a bad deal

How Do Car Loans Work?
Car loans are really just personal loans that allow you to purchase a new or used vehicle. Car loans allow you to borrow a certain amount based upon your financial situation and you agree to repay back the money within a selected time period. The time period to pay back the loan can vary depending on your situation, however the general length of time is between 12 months to 5 years. In taking out a car loan you’ll have to sign a credit contract which specifies the borrowing amount and how you’ll be paying it back.

The amount you borrow will have fees, charges, and interest which will be included and added to the loan. The interest rate may be a fixed rate where the interest is locked in at a certain percentage for the loan term, or a variable rate where the interest rate may go up and down per month. For set repayments fixed rate car loans are the best option, however if you want to pay out your loan early or you want to pay extra repayments from time to time, it may incur an early termination fee.

Car finance can also be unsecured and secured depending on whether you have any other asset which can be security for the loan. Secured loans generally feature lower interest rates, but if you fall behind on your repayments, the lender has the right to sell your vehicle to pay back the loan and get their money back. Unsecured loans don’t require your car as security, but will feature higher interest rates because there are bigger risks for the credit provider.

If you purchase your vehicle from a car yard, sometimes car dealers may offer you finance to buy your vehicle. While this may be more convenient than going to your bank, it’s generally cheaper to get a car loan somewhere else such as at building societies, credit unions, and banks who specialise in these types of loans. Make sure you check what’s on offer and compare each one to find the best deal for your needs.

Choosing A Car Loan
Secured Car Loans – You offer an asset as collateral or security for the loan. This can be the car itself that you’re buying. Other examples of collateral could be another vehicle, your home or shares. These loans are typically easier to get and have lower interest rates as there is collateral attached to the loan.

Understand that with secure car finance, your car or the asset used can be reposed if you don’t make the repayments to the lender.

Unsecured Car Loans – Unsecured loans are the opposite and generally require good credit, a strong employment history and demonstrate the ability to make the repayments.

Failure to make repayments can result in bad credit and court ordered loan repayment. The interest rates for unsecured car loans also tend to be higher than secured loans, although this is ultimately determined by the borrower’s financial background and lenders criteria.

Low Income Car Loan Options (including Centrelink)

Fairloans – Is a community lender and provide low interest loans up to $4000. The repayment period is 12 months. They do accept Centrelink applicants and provide funds in as little as 48hrs in some cases. This is a good option for single parents, pensioners, unemployed and those collecting benefits.

Non-Bank Lenders – If you live near a building society or credit union, they typically have lower rates and different finance products for self-employed and low income earners.

Peer To Peer Lenders – This is a newer type of lending in Australia which allows those on a low income or with poor credit, access to higher loan amounts. If you are looking for a loan amount of $10,000 to $15,000 this may be an option. Note that interest rates will be higher than the non-profit options but potentially lower than banks and other specialty vehicle finance companies.

Car Loan Broker – If you are finding it difficult to obtain a loan, a broker may be a quicker way to see what is available. Brokers have access to numerous loan products and will be able to tell you what you qualify for based on your circumstances and their network. Keep in mind that they will only be able to discuss lenders of which they have a relationship with and that may not represent all loans in the market.

Budget For The Full Cost Of Owning A Vehicle (IMPORTANT)
Before taking out a car loan, it’s important to know whether you can actually afford it on a low income. This can be done by budgeting for the full costs that are associated with the vehicle which include annual fees such as insurance and registration. You may also join a motoring organisation which offers roadside assistance which adds additional costs. There are even road tolls in some areas, maintenance costs, repair costs and petrol costs to consider.

Insurance can be a major drain on anyone’s budget. You have the decision of getting full comprehensive insurance and third party property insurance. Comprehensive car insurance covers you for any damages that may occur to your car if you’re in an accident. Third party property insurance covers you when you initiate accidental damage to another person’s vehicle or property that’s covered under your insurance.

Although insurance can be expensive, it’s important to have your vehicle covered. By not having your vehicle covered it can cost you hundreds to thousands of dollars if you have an accident. Shopping around different insurance providers help you to see whether there’s a cheaper option that caters to your low income. For loans where your vehicle is secured you will need to get comprehensive car insurance.

The annual costs of operating a vehicle is generally around $2500 a year or more – see below:

• Insurance
• Registration
• Fuel
• Maintenance costs

The above does not include the loan repayment of the vehicle either.

Compare And Shop Around For The Best Deals
When looking for a credit provider to finance your car loan, it’s important you find the best deal when you’re on a low income. This can be done by shopping around and comparing lenders. Make sure you understand everything associated with the loan if you do decide to take it out. You should always see your credit provider first before shopping for a vehicle. This allows you to know exactly how much you’re allowed to spend so you don’t make a high pressure and costly decision at the car dealership.

When comparing lenders, it’s important to be aware of applying for a car lease when you want to get a loan. Car leases mean you will rent the vehicle for a period of time that’s been agreed to but you don’t have the option or right to purchase the vehicle. With leases, at the end of the lease period the lease is terminated and the car is put up for sale. Although you may have the option to buy the car, you generally need a large amount of money up front. The credit provider also doesn’t have to accept your offer. So if you want to own your vehicle, don’t get a lease.

Be careful of car yards that heavily promote car finance or loans for unemployed, pensioners, Centrelink recipients or other low income earners. The costs associated with these operations can be extremely high and end up putting you in a worst position. Always check online reviews of these companies first, make sure they are a registered business and potentially have a third party professional counsellor review the numbers with you.

Only Pay For What You Need – Watch For Add Ons
When you take out a loan it’s important to be careful of loan protection insurance which is sold as an additional add-on service. With this form of cover, the insurance provider contributes to your loan repayments if you can’t due to sickness, involuntary unemployment, or time off work due to injury. In the event of death, your life cover will pay any loan balance which is outstanding. When considering this type of insurance, shop around as it usually is poor value for the cost you will be paying.

With some dealers they may offer shortfall insurance or gap cover. This insurance is designed to cover the difference between the agreed value and market value that your insurer pays and the amount that’s required to take out the remainder of the loan if your car is written off, stolen or damaged beyond repair. This insurance may also cover additional costs associated with your vehicles current circumstance. It’s important to think carefully about whether this additional cover is need. If you feel it is, make sure you shop around.

Another add on you may be offered is extended warranty. This is additional insurance to cover the costs of unexpected mechanical repairs, labour and parts if it occurs within the warranty period. Before you purchase the extended warranty however, it’s important to make sure it’s really worth the money. You can find out this by asking:

• Does it offer additional protection features that exceeds the normal warranty for the vehicle?
• When does the extended warranty actually start?
• Are there any specific conditions or restrictions?

It’s important to check the benefits and whether they’re worth the additional extra money you’re going to pay out.

If you don’t feel comfortable with any of these additional options, you don’t have to take them out. Car dealers aren’t allowed to deceive or mislead you in any way about the advantages of additional insurance coverage and how much you actually need it. With any additional cover, always check the terms and conditions as they may vary from those which are covered by your comprehensive insurance. Work out whether you really need it by taking your time. Don’t let anyone push you into making the decision right on the spot.

Top Six Steps To Borrowing Money On A Low Income
Step #1 – Work Out Whether You Can Afford It

• Before borrowing any money, find a budget planner online and see where your money is being spent and how much you can afford in additional repayments.
• If your job doesn’t provide the security needed, it may be best to build a larger deposit before taking out a loan.
• Save up as much as possible so the borrowing amount is less. This helps you save on interest.
• Remember before taking out the loan, consider and allow for any rises in the interest rate along with anything else which may affect your overall income such as job changes.

Step #2 – Shop Around For The Best Deals

• Take the time to shop around and compare product features, interest rates, and charges and fees associated with the finance. Small differences in the interest rate really can make a huge difference with what you have to pay off.
• Smaller borrowing amounts that are less than $5,000 may be harder to get from your loan credit provider. Many lenders offer smaller loans with high interest rates and fees. Watch out for high cost credit and pay day loans.
• Always check the car loans terms and conditions before making a final decision so you know what you’re getting into. This includes knowing the penalties for any repayments which are missed or what fees you’ll incur if you pay the loan off early. Take time to think things through if you feel your being pressured into something you don’t understand so you can make an informed decision.

Step #3 – Knowing Who You’re Dealing With

• All businesses which engage in credit activities must be ASIC licensed or be an authorised representative of someone who is licensed. If you find someone who isn’t licensed, they’re operating illegally and should be reported.
• Through some businesses such as car yards or retail stores, there are licensing exemptions for credit assistance. While the store itself may be exempt, the provider must be licensed. If you don’t know who the credit provider is, don’t be afraid to ask the person who you’re dealing with to highlight their name in the contract.
• If you want to find out whether a credit provider is licensed call ASIC’s information line on 1300 300 630.
• Anyone who is working on providing credit activities must give you a credit guide or written notice about the details to your right when you want to complain about their activities.

Step #4 – Keep to Your Repayments Schedule

• To avoid being charged with penalty fees, always keep your repayments up-to-date.
• Make any additional extra repayments so you can save on interest as long as it doesn’t incur a penalty.
• Consider bill smoothing for all your vehicle costs.
• Make sure you keep your vehicle insured at all times. Secured loans require comprehensive car insurance.

Step #5 – Get Help If You’re Struggling To Pay For Your Loan

• If you’re having problems making the repayments on your loan you need to act quickly. Ignoring the problem will make matters worse.
• If you can’t make the entire full repayment, pay what you can, even if it’s half the amount and contact your credit provider straight away.
• You have the right to apply for a hardship variation if you’re experiencing financial difficulties. If they refuse you, you can complain to the independent dispute resolution scheme.
• You can find help and support by calling the ASICs info line on 1300 300 630, the National Financial Counselling Hotline on 1800 007 007.

Step #6 – Complain If Things Go Wrong

• If things go wrong, try to always resolve the problem with your credit provider. If you aren’t satisfied with the results, complain to the independent dispute resolution scheme that is in association with your provider. This generally will be either the Credit and Investments Ombudsman, call 1800 138 422 or visit cio.org.au, or the Financial Ombudsman Service, call 1800 367 287 or visit fos.org.au.
• If you believe that your credit provider has acted in a misleading way or unlawfully, you can complain to ASIC by calling 1300 300 360 or by complaining online at asic.gov.au

Conclusion
When it comes to getting finance for a car loan when you’re on a low income, it’s important to know your rights and everything associated with the loan. By knowing everything and comparing lenders you can easily find an affordable car loan that’s right for your budget and needs.