Thinking of buying a new car? Here’s how to avoid the traps and pay less

If you’re looking into new or used cars for the first time, or for the fiftieth time, it’s worth being aware of what payment pitfalls and buyer beware traps are out there.

Mortgage broker for AA Finance Solutions, Leonard Nagawidgaga, spoke to WAMN News about what people should know when it comes to car loans.

Rate Rises For Car Loans

According to Leonard, interest rate rises are also affecting car loans, with the interest rates for car loans increasing due to the increased cost of funding.

Car loans are similar to mortgages, says Leonard, however, “the only difference is that the interest rate that you get is a fixed rate”.

“So you will get whatever the rate is on the settlement date that will go throughout your five years, four years or whatever [may be] your loan term…and also if you want to pay it off early in general, they do charge a bit of an exit fee as well,” he said.

What to avoid

When asked what to avoid when it comes to car loans, Leonard says to find out what the actual repayment is per month.

“Because there’s a lot of ways that we can manipulate the application, so one person can say to you that the interest rate is really low for the car loan, but in the background, the broker or the bank, can charge a higher application fee and vice versa as well,” he said.

“So, the application fee can be a little bit lower then, but the interest rate can be slightly higher.

“So the question is…How much is your monthly repayment all up, and what are the total costs in setting up and discharging your loan.”

Balloon Payments

In regards to balloon payments, Leonard thinks that they are better suited to businesses rather than for personal use.

“So the purpose of the balloon payment is that it helps you with a reduced monthly repayment compared to if you were to finish up the loan in in one go,” he said.

“But paying the balloon payment, you actually pay a little bit more of that interest.

“So it just help[s] you in the beginning with your cash flow…it’s not a bad idea for businesses to manage their cash flow.”

Leonard said that you choose the percentage of the balloon payment you want at the end of the term.

“If you do decide to take a balloon payment, in general, you’re paying more interest rate,” he said.

“And if you’re a business you can claim it against your business as an expense, those interests.

“So for business, the main important thing, what they’re looking for is cash flow because when you set up a balloon payment, in general, you’re paying less monthly repayment therefore more cash to the business.

“But if it’s for personal use, there’s no point of you paying more interest to the bank.”

Do Your Own Research Or Speak To A Broker

Leonard’s biggest piece of advice is that people should do their research.

“So I think the important thing is just to do your research, go and ask a few brokers, go and ask a few lenders and just compare and not just to stick with one,” he said.

“Just double-check again, because like I said there’s a lot of variety that you can do to manipulate the repayment and the application fee.

“So do your research.”

If you or someone you know has questions concerning their finances, you can contact Leonard on 0433068970 or fill up the form below.