A guide to car loans in 2024

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There's no other way to say it: life is simply getting more expensive.

The past few years have seen a noticeable shift in our economic landscape. With living expenses on a steady incline, Aussies are becoming increasingly conscious of their financial decisions. From housing costs to daily groceries, every money move matters.

And consequently, finding new ways to save to manage finances is as hot a topic as ever. For many, this extends to choices in car ownership and financing.

For some, owning a car isn't just about the luxury of personal transportation but is essential for getting from point A to B on a day-to-day basis. Whether you're looking to buy new or into the option of used car loans, financing can help solve problems that the current cost of living crisis poses.

But what type of car loan is right, and how do you sift through the jargon and find the best deal for your lifestyle? No matter if you're a first-time buyer or considering changing vehicles, let's break down the maze that is car loans heading into 2024.

At its core, a car loan is a mutual agreement: a lender gives you money to buy your chosen vehicle, and you commit to paying them back, typically with a bit of extra (interest) on top, over a specified period. Think of it as a trust exercise; they're betting on you to uphold your end of the deal.

The components of a car loan include the principal, the interest rate, the loan term, and repayments. The principal is the original sum you borrow. If you're buying a car priced at $20,000 and you put down a $5,000 deposit, the principal you'd be borrowing is $15,000.

The interest rate can be thought of as the cost of convenience. It's the price you pay for the privilege of borrowing and is typically presented as a percentage. This rate can vary based on factors like your credit history and the loan's duration.

How long you're taking out the loan for is the loan term. This determines how long you'll be making repayments. Repayments, on the other hand, are how frequently you'll be paying back the loan. Monthly is standard, but some might opt for fortnightly.

The combination of these factors affects how much you end up paying in total. For instance, a longer loan term might mean smaller monthly payments, but you could end up paying more in interest over time.

Assessing each component carefully and applying its effects to your long-term financial strategy will help you maximise money management. As costs associated with car ownership, such as fuel and commuting expenses continue to climb, it's critical to capitalise on any potential savings.

The age-old question: to buy a car new or used. Each option has its perks, from that unmatched smell of a new car to the less steep depreciation rates of pre-owned. But what about when it comes to loans?

Interest rates often differ between the two. New cars typically come with more attractive rates. Why? They're backed by a fresh-off-the-lot vehicle, offering lenders more assurance. Used cars might see slightly higher rates, given their prior history and the perceived risks associated with potential wear and tear.

Then there's the matter of the loan amount. New cars, with their untouched appeal and added features, tend to command a higher price. This usually translates to a heftier loan. On the flip side, used cars usually involve a smaller loan size, reflecting their reduced market price.

The duration of the loan can vary as well. Shiny new vehicles often come with the option of stretching out payments over a longer span, providing flexibility in repayment. In contrast, loans for used cars might be expected to be paid off in a shorter window.

Lenders also factor in vehicle age and mileage, especially for used cars. These considerations help them assess the car's residual value over the loan period.

When every cent counts, the perks of car financing are pivotal.

For starters, car financing makes owning a vehicle accessible. Rather than waiting to accumulate a hefty sum, you can get behind the wheel now and repay in manageable increments. This approach is particularly advantageous given the unpredictable nature of today's economy.

Financing also offers flexibility. The right loan terms can help people tailor their repayments to align with their financial situation. Plus, the benefit of credit building is always a stand-out one, and timely car loan repayments can significantly help boost one's credit score down the line.

While the decision to finance might first be framed by the cost of the vehicle, the real value lies in the broader financial flexibility and opportunities offered.

There are many different loan types and financing options available for those looking for a car loan in Australia. For either a new or used vehicle, always begin by assessing your budget to determine your monthly loan affordability. Start by reviewing your credit (as a strong score can unlock better loan terms), and researching lenders.

Consider seeking pre-approval, as it not only clarifies your budget but also gives you a leg up during negotiations. Once your car choice is locked in, finalise the loan details with your lender, and you're on your way to car ownership.