Each and every lender will apply their interest rates differently. Some work on a ‘rate for risk’ scoring system, where they will take into consideration many factors such as the vehicle, how much is being borrowed against it, the stability in the applicant’s residence and employment, how much surplus funds will be left after the loan repayment, your net position from your assets and liabilities, previous credit history and in my opinion, most importantly, your credit file.
Other lenders may work on a flat rate system dependent on being a new car or a used car and some may have incremental rate loadings dependent on certain circumstances, such as the requested loan term, age of vehicle, private or dealer sale, etc.
So, how do you secure the best car loan rate for yourself?
Many people don’t understand this and would argue the fact that it is unfair, but unfortunately the first thing a lender looks at prior to assessing your application is usually your credit file. If you have applied to a number of lenders in a short period of time, lenders treat this as a big negative and quite often the application will be declined due to it and can also quite often affect the interest rate applied to the loan if it were to be approved.
If you are shopping for the best deal for yourself, the worst thing you can do is actually submit full applications to multiple lenders, unless you are somewhat committed and happy with what has been offered.
Be very cautious of any applications submitted through brokers and ask them to be very clear with what they will do with your application, as quite often they could send it to a number of lenders on their panel and this can cost you in obtaining approval, or the deal you really deserve.
All this makes it very confusing for the client, as they are often told “we won’t know what rate we can get you, unless you provide us with a full application”. This is true in most cases, but some providers may use it to their advantage to actually submit your application to as many lenders as possible, just to try and win the business at your expense.
A good qualified, experienced finance broker should be able to get a pretty good idea of which lender would approve your loan and how they would rate it without submitting any enquiry on your credit file. The only time they may get it wrong is if there is something on your credit file that they were not made aware of prior to estimating the rate they could achieve for you, or if you didn’t provide them with complete accurate information.
Just because you have been in your job or residence for a short time, does not mean that you can’t get a good competitive rate, it just shortens the list of recommended lenders to use, as if a lender was used that worked on a ‘rate for risk’ scoring system, you may score poorly due to instability, so you may want to look at a different lender that works on a flat rate based on the vehicle and how it is being purchased.
It is very easy to get it wrong if you don’t understand all the lender’s guidelines and criteria, so a good professional broker can take this guess work out of it and can ensure your credit rating is protected by getting the right loan for you, the first time and this can also save you time and money.
CarLoans.com.au can provide you a free car loan assessment, this assessment will determine what loan product suits your needs best as well as providing you with the interest repayments - click here to get a free assessment