Most car loan advice will tell you about what to look for but knowing what to avoid is just as important. A bad car loan can cost you thousands down the line and negatively impact your credit for years too. It’s best to stay alert and watch out for these red flags when applying for car finance:
Red flag #1: Too many hidden fees and unnecessary add-ons
When shopping around for car finance, you’ll see loans advertised with insanely low or even 0% interest rates. These car loans sound almost too good to be true, and they usually are.
It’s tempting to take these lenders or dealerships up on their offer—but beware because there’s always a catch. These car loans are typically packed with hidden fees and unnecessary add-on costs to make up for the low interest rates.
Before finalising any car loans, always read the fine print carefully. Ask questions to ensure you understand everything. If a salesperson or lender is being a bit too pushy, take that as an extra red flag and run in the other direction. Don’t feel pressured into paying for an optional service from dealerships that doesn’t really add value to your car purchase.
Red flag #2: Expensive penalties for early payment
It’s common for car loans to have penalties if you make early repayments or pay off the loan before the loan term ends. Lenders make money off the interest payments, after all, so it’s in their best interest to discourage borrowers from paying out the loan earlier than agreed upon. However, what’s not normal, is making borrowers pay an exorbitant amount to do so.
Paying off your loan early can save you thousands in interest payments and minimise the overall cost of your car loan. But this option won’t be possible if you’re shackled with excessive penalties. If you spot unreasonably expensive penalties on a car loan, it’s best to move on and find something with better terms.
Red flag #3: A lender or dealership ‘guarantees’ car loan approval
One of the biggest red flags is lenders or dealerships advertising ‘guaranteed approval’ on their car loans. Not only is this a sign of a bad car loan, but it might also indicate questionable business practices on the lender’s part. These types of lenders are more trouble than they’re worth. It’s best to avoid them and move on to more reputable places.
When looking for the right car loan, work with only trusted lenders and dealerships. Legitimate lenders or dealerships will always ask for requirements and check your credit score and financial history first. This is to ensure that you’re able to repay your loan and determine how much you can afford.
Tips to finding a good car loan
Get the best car loan possible for your situation by following these tips and tricks:
- Review your finances. Before looking for the perfect car, you must know how much you can comfortably afford. Getting a pre-approved car loan could help you set a budget for a car. Aside from the purchase price, you also need to understand the total cost of owning a car.
- Compare car loans. Don’t settle for the first car loan you see. It’s always a good idea to shop around and look at your options. In addition to looking at interest rates, see the terms and conditions to ensure they’re favourable to you.
- Consider the additional costs. This includes stamp duty, off-road costs, and additional fees for the car loan. Car buyers who don’t include this in their original budget calculation are in for a surprise once it’s time to pay up.
- Think about the down payment and balloon payment. Although these are not mandatory for car loans, they may help lessen the repayments and lower the overall cost of the loan. Look at your finances and see if these can help improve your financial situation long term.
- Boost your credit score. A low credit score could make it harder for you to get good interest rates and loan terms. Before applying for a car loan, take care of any outstanding debts and make timely repayments to improve your credit score.
Want an easy and stress-free car loan application?
Get in touch with us at CarLoans.com.au! As a car loan broker, we’re here to take the hassle out of the whole loan process. We help borrowers find the best car finance rates by connecting them with our vast network of trusted lenders and dealerships.