Top 5 Car Finance mistakes and how you can avoid them!

What is the best thing about buying a new car?

Did finding a car loan make your top 5?

We know car finance isn’t as exciting as buying a new car, but it’s important to understand how it works so you can make the best decision for yourself and your lifestyle. Do you know which lender will give you the best deal? What’s a good interest rate?

It’s time to get in the Driver’s Seat. Our experienced Finance and Insurance Team have put together the top 5 car finance mistakes and how you can avoid them to make finding a car loan stress free.

1. Not knowing your credit history.

Only a quarter of Australians know their credit score, which is like driving blind when deciding what your best car finance option is. Knowing what your credit score is and how to use it wisely is now more important than ever to your hip pocket because a good credit score can get you a better deal anytime you borrow money.

So, what is a credit score? 
It is a number on file that all lenders will look at when deciding how risky you are as a borrower. The better the score, or higher the number, the more lenders will trust that you will repay the loan. But a low score will attract higher interest rates because you appear riskier and less likely to repay the loan.

How do I find my credit score?
In Australia, you are entitled to get a copy of your credit report for FREE every 3 months. The three most trusted credit reporting bodies in Australia are:
Equifax – 138 332
illion – 132 333
Experian – 1300 783 684.

It is recommended that you get a copy at least once a year and fix any mistakes on your credit report as soon as you find them. 

I have a low credit score, how do I change it?
A credit score is dynamic, it moves up and down based on your financial behaviour. Doing simple things like paying your bills on time, limiting the number of credit cards you use, and lowering your credit limit will help improve your credit score.

2. Not planning a budget.

Good spending habits improve your borrowing power! A budget helps you work out where your money is going and gives the finance provider confidence that you can afford to pay back your car loan.

You will need to know all your monthly expenses when applying for car finance. Our advice is to set an achievable budget using your current spending habits as a guide. This will show that you can manage your spending, maintain your lifestyle, and meet your financial commitments, including car loan repayments. Savings are great! But if you’re constantly dipping into your savings account or failing to pay bills on time, it may impact your credit score or make gaining pre-approval tricky.

TIP: Use how often you get paid as the timeframe for your budget. For example, if you get paid weekly, set up a weekly budget. Money Smart has a great budget template that you can use.

Now that you have done the hard yards and worked out exactly where your money is going you can calculate your maximum loan repayment. The general rule of thumb is to spend no more than 10% of your monthly income on your car loan repayments. For example, if your weekly take-home pay is $1,000; aim to spend less than $100 per week on loan repayments.

Now, add this amount to your budget planner to calculate your future financial situation.

Is this a comfortable loan repayment for your lifestyle? How long can you afford to pay this amount per month? Remember, the loan amount you are eligible for might not equal the price of the car you can afford.

3. Not shopping around. 

The most common financial mistake we see people make is not shopping around. Taking out a car loan is an important decision. You may have been with your bank for years, even decades, but do they have the best car ownership solution for you?

Our team of dedicated Finance & Insurance specialists at Dubbo City Toyota means your new car purchase and finance can be taken care of easily through our one-stop-shop approach. Our highly trained and experienced team only specialise in car loans. The upside of this expertise is that our team can save you time and money by taking care of the car loan paperwork for you.

FACT: All financial institutes must abide by the same rules and are governed by the same regulator – ASIC.

There’s a range of Toyota Finance products to help you get on the road with your new Toyota, we’re going to explore two - Toyota Access and Toyota Fixed Rate Loan. And the good news is both give you a fixed interest rate, which manages the risk of rising interest rates, and you know what your repayments are each week.

No matter which option you choose, our clearly defined process gives you the confidence of a personalised interest rate and flexible options to manage your vehicle loan. Calculate your unique Toyota Personalised Repayments [F6] before selecting a finance option that best suits you.

With Toyota Access you’re in control from the start. Once you have selected your Toyota you will have the ability to adjust your deposit, loan term, and kilometre allowance to find the weekly repayments that suit your lifestyle. You will also know your vehicle’s Guaranteed Future Value* and can choose from flexible loan options at the end of your car loan

Our Fixed Rate Car Loan allows you to pay off your loan on your terms. You decide the deposit amount, the length of your loan – anywhere between 1 and 7 years – and how often your repayments are due. And best of all, at the end of the loan, the vehicle is yours to keep.

4. Not getting pre-approval.

Now is the time to seek pre-approval! Getting pre-approval on your car finance loan is a great way to organise your finances and speed up getting into your new car! Plus, it helps you stick to your budget avoiding a common pitfall we see, overspending.  

You can start the pre-approval process using our online finance calculator here

TIP: Only seek pre-approval from your top 2 to 3 lender preferences. Seeking too many pre-approvals can negatively affect your credit score.

Once you have applied, your lender will offer pre-approval or conditional approval, if you meet their criteria. This means that in principle the lender agrees to give you a loan to buy a car. However, it’s important to note that if your financial situation changes or there are any major changes to the lender’s criteria, it does not guarantee you will receive the car finance loan.

Once you have found the car of your dreams, unconditional approval is the next step. Because pre-approval involves similar steps to applying for full approval on your car loan, you will already be well on the way to getting into the driver’s seat of your new car!

5. Not thinking long term.

You have the knowledge of your credit score, a realistic budget and the essential pre-approval; now it’s time to think about your long-term finances.

Everyone’s personal financial circumstance is different, so financing that is suitable for one person may not be suitable for another. Make sure you choose a responsible lender who is willing to take the time to understand your financial situation, including your income and expenses. Avoid lenders who may try to push you into a car loan that is beyond your means to repay. Instead, look for a partner who will work with you to find a solution that is affordable and sustainable for your budget.

 

 

Looking to reduce the total amount of your car loan?
Consider trading in your current vehicle to increase your down payment and total deal’s worth, it may reduce the interest you pay over the life of your car loan.

Let’s talk about interest rates. Yes, getting a lower interest rate does make a big difference long term. For example, on a $50,000 car loan, reducing your interest rate by just 0.5% can save you almost $1,000 over the loan term which sounds great! But you need to be wary of 0% or very low-interest rates. They can be tied to higher account fees, exit fees, re-financing fees and payout conditions, which may cost you more in the long run.

Will the car you’re looking at today, be the car you need in the future? As your lifestyle changes, Toyota Access provides you with the flexibility and assurance that you will be driving a car that suits your lifestyle.

Has a big bank ever guaranteed you how much your car will be worth at the end of your loan?

We can do that with Toyota Access and Guaranteed Future Value. This means that you will know the minimum value of your Toyota at the end of your loan term, as determined by Toyota Finance. So, if you decide to return the vehicle to us at the end of your loan term, you can rest assured knowing that, if fair wear and tear conditions and agreed kilometres have been met, we’ll pay you the GFV which will be put against the final payment. This helps to keep you in the driver’s seat of a new car and provides continuous upgrades back to new car warranties and provides you with capped-price servicing for your car that could save you thousands over your loan term!

We want your new car-buying journey to be remembered for all the right reasons! Whatever you need, our team of specialists are on-hand and ready to help. Get in touch with us today!

Disclaimer:

Finance Quote & Application
[FS] If your financial situation changes between the online stage and before you visit a dealership to process your application, your rate and repayment amount may change.
[F6] Approved applicants only. Terms and conditions apply. Toyota Finance is a division of Toyota Finance Australia Limited ABN 48 002 435 181, AFSL and Australian Credit Licence 392536.
Figures shown are for illustrative purposes only.
[FSC] If your financial situation changes between the online stage and before you visit a dealership to process your application, your rate and repayment amount may change.

Guaranteed Future Value (GFV)
*The Guaranteed Future Value (GFV) is the minimum value of your Toyota at the end of your finance contract, as determined by Toyota Finance. If you decide to return your car to Toyota at the end of your term, Toyota Finance will pay you the agreed GFV, which will be put against your final payment subject to fair wear and tear conditions and agreed kilometres being met. The information provided is general in nature. You should seek your own financial advice to determine whether Toyota Access is appropriate for your individual circumstances. Terms, conditions, fees and charges apply. Toyota Access GFV products are available to approved customers of Toyota Finance, a division of Toyota Finance Australia Limited ABN 48 002 435 181, AFSL and Australian Credit Licence 392536.
#Lower monthly repayments compared to similar term with no Guaranteed Future Value (GFV) or equivalent balloon final payment. Total interest charges will be higher is a GFV or balloon final payment is selected.
^Approved applicants only. Terms and conditions apply.