How Australians can save money on their car loans

As Australians dust off their cars for their daily commute after months of lockdowns, car spending is set to pile up.

In 2021, the cost of transport has risen to a national average of 14.9% of household income, compared to 12.8% in 2020.

Record gasoline prices are partly to blame, but auto loan repayments are also a major contributor to transportation costs.

So here are some ways to cut them.

Evaluate your options

Savvy Finance founder and CEO Bill Tsouvalas said one of the biggest mistakes car buyers could make is not comparing their loan options.

He said people should look at products beyond their current bank or dealership to find the best deals.

“I think comparing options is really important,” Mr. Tsouvalas said.

“Whether they do it through a broker, [or] online via a comparator, [or] call three or four car loan companies and get quotes.

Consider your credit score

Mr. Tsouvalas said it’s important to stay on top of your credit score.

“The higher your credit score, the cheaper your interest rate [will be] from an auto lender,” he said.

People can easily access their credit scores online the same way they would for a home loan.

Companies such as Experian, Equifax, Canstar and Searcher provide a free service.

CarClarity founder and CEO Zaheer Jappie said a little-known danger of applying for multiple loans is the negative effect it could have on your credit score.

Mr Jappie said applying for multiple loans in a short period of time will lower your score, as the majority of lenders do a thorough credit check.

He said using a third-party site such as CarClarity to find the right loan would reduce the risk of affecting your credit score.

look for the exit

Mr. Tsouvalas said that while one of the best ways to save money on your car loan is to pay it off quickly, some lenders charge early exit fees.

So he recommended looking for a loan facility that charges low or no exit fees if you expect to pay off your loan in three years instead of five.

Mr Jappie said that even if you are charged an exit fee to pay off your loan early, it still makes sense to pay the one-time fee instead of the higher interest rate charges you would otherwise face.

Refinance

Jappie said refinancing is a great option for people with new car loans who want to lower their repayments or interest rates.

“A car loan that’s one or two years old is probably the best time to refinance,” he said.

“Generally in the first two years you can probably get a better rate, maybe half your rate.”

Do your research

When buying a car, people should develop a good understanding of how much they can afford to spend, Mr Jappie said.

He also said people should resist the “instant in-store pressure” to get a loan directly from their bank or regular dealer, and do as much research as possible to keep costs down.

Mr Tsouvalas said buyers should research the resale value of their car’s make and model and be careful not to rush the car-buying process.

“Mistakes happen when people just don’t take the time to research,” he said.

“Slowing down the process, doing proper research and comparing options is essential.”

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