Five ways to prepare your finances ahead of buying a car
THINKING of buying a car? Think your finances need a bit of sprucing up?
Getting your finances and banking in order before buying a car might involve more running around; however, it could save you thousands in interest (and heartache) in the long run - lenders LOVE borrowers with good finances.
So, here's five tips to keep them sweet:
1. Check your credit history
You should know what's on your credit history before you walk into a dealership or car loan lender. Your credit history lists where you've applied for loans, your debts and other information lenders need when deciding what interest rate you'll end up paying.
Sometimes your credit history may have defaults on it of which you are unaware. If they do, it's your responsibility to fix them by talking to where the default came from. Sometimes, correcting them might give you a better credit rating than before! You can find out how to obtain your credit history at ASIC's MoneySmart website. It's free.
2. Stop unnecessary spending and credit
It's always good to stop unnecessary spending before making a major purchase such as a house or a car. The temptation to use "Uber Eats" (directly linked to credit cards) or post-purchase credit such as AfterPay or ZipPay is strong (and easy) but showing restraint will make a big impact on your lender or broker.
You should also check that your finances are in good standing. You should also check you have no potential overdrafts such as "set and forget" direct debits.
3. Save for a deposit
Having "skin in the game" is always a good thing from a finance perspective, as it takes the burden of risk away from the lender. It also helps you by having equity in the vehicle, so you can pay it off sooner. Having a deposit saved might be tough to start. It'll save you more money in interest over the term of the loan.
4. Getting a Car Loan With Bad Credit
Some of us may have had bad credit in the past, but it shouldn't hold us back when getting our finances in order for a car loan. If you own a credit card, showing lenders consistent repayments above the minimum can help lenders see you as a lower risk. You should also be up front about your credit history; dishonesty will come back to bite you.
"Lenders want to lend to you, but if you put obstacles like fudging numbers or being less than honest, they will not hesitate to turn you away," says Savvy CEO Bill Tsouvalas.
"If you are approved for a car loan with bad credit, making regular repayments in full can actually help to repair your credit history."
Once approved, you need to know that you will most likely be paying higher interest rates due to your risk profile - you may have to lower your budget to accommodate. However with good financial conduct, it won't last forever.
5. Get pre-approval from a broker
The ultimate secret weapon in sorting your finances for a car is loan pre-approval from a broker, Mr Tsouvalas explains.
"A broker is your best friend in the car loan market," he says.
"Instead of offering one or two options, a broker will find dozens of loans to suit your needs from a variety of lenders.
"Brokers keep lenders honest. Once you get pre-approval, you set a spending limit. If you have a price ceiling, it gives you an edge over a dealer.
"Your pre-approval limit is the highest you can go and a dealer will have to match you, or they lose the sale!"