Car sales boom: here’s what you should pay for finance

Aussies are buying about a million new cars and three million used cars a year. Here’s how to get a good finance deal.

Car loans are climbing as the pandemic drives a motor vehicle sales surge and falling interest rates prompt people to upgrade.

But how do you know what’s a good price to pay for finance?

New Australian Bureau of Statistics data shows personal loan commitments for motor vehicles in October were $1.12 billion, and total $11.6 billion since January – up 17 per cent from the $9.9 billion from the first 10 months of 2020.

Research from comparison website Mozo.com.au has found 52 per cent of Aussies have taken out a personal loan for a car in the past decade, for an average loan size of $25,000.

Its analysis of 338 products found the average new car loan interest rate is 5.95 per cent, while for unsecured personal loan it’s 9.54 per cent.

“On average, personal loan and car loan interest rates have dropped around 1 per cent in the past two years, driven in part by the falling cash rate and other RBA measures,” Mozo spokesman Tom Godfrey says.

HOT COMPETITION

“We’re also seeing increasing competition with a range of new non-bank lenders entering the market, putting pressure on more traditional lenders to keep their rates as low as they can,” he says.

Car loans represent more than one-third of all personal loans, excluding refinancing.

Car loans have climbed 17 per cent this year. Picture: iStock.

Godfrey says people wanting to get a good car loan deal should save a decent deposit, prove their income, assets and liabilities, and compare interest rates and terms and conditions.

People’s Choice Credit Union spokesman Stuart Symons says demand for its car loans increased almost 20 per cent in the September quarter.

“And interestingly, we’ve noticed a change in the broader market with more people using their savings and redrawing from their mortgage to finance a car, which is in line with people generally wanting to reduce debt as a reaction to Covid,” he says.

“Loans can vary considerably depending on the terms and conditions, so it’s important that you make sure you’re comparing apples with apples and not just focus on the interest rate.

“We currently offer a car loan at 4.65 per cent per annum – 4.99 per cent per annum comparison.”

GREEN IS CHEAPER

Symons says people should always check comparison interest rate – which includes fees – and be aware of extra charges such as upfront and monthly fees, early payout penalties, and balloon payments at the end.

“You need to shop around for a loan, just like you’d shop around for a car,” he says.

“Think about having a loan pre-approved before you purchase. It can give you more negotiating power and can also save you from going beyond your budget.”

People who embrace the global push towards clean energy can potentially grab a better car loan deal, with Mozo finding interest rates for an electric vehicle (EV) personal loan can be as low as 3.99 per cent.

In November, consumer lender Plenti launched a new EV finance suite of products including interest rates up to 0.5 per cent below its regular car loan rates.

“More and more Australians are recognising the clear benefits of EVs – the market is starting to take off,” Plenti CEO Daniel Foggo says.

Mozo.com.au spokesman Tom Godfrey says competition among lenders is fierce.

WHAT TO COMPARE

Moneysmart.gov.au says shopping around for the right personal loan can save you thousands in interest and fees. It says consumers should check:

• The comparison rate – a single figure of the cost of the loan including the interest rate and most fees.

• That they are comparing the same loan amount and term.

• Interest rate to be paid.

• Extra costs such as an application fee, monthly service fee and missed payment fee.

• Terms and conditions of the loan, including if extra repayments can be made.

• Length of the loan – shorter terms often have lower interest rates while

longer terms usually mean lower repayments, but you’ll end up paying more.

Source: Moneysmart.gov.au

Originally published as Car sales boom: here’s what you should pay for finance