A Quick Guide on how to get the best deal when buying a car.


Buying a car can be extremely stressful as not only are you spending a large sum of money but you also faced with having negotiate the cost of your car, determine the cheapest way to finance the car and make decisions on costly warranties and servicing deals.

Comparing the cost of both new and used cars is now relatively easy through on line car sites, such as carsales.com.au where you can see the prices which are being offered by both dealers and private sellers. This knowledge on prices certainly can help in the car buying process, however the car dealerships make most of their money on each car sold from the sale of financing and warranties. So if you are out shopping for your next car without a clear idea of how you are going to finance your purchase you are potentially walking into a negotiation with the dealer unarmed with the information that will secure you the best deal.

Every car buyer should follow one simple rule: Organize you car loan before entering any car dealership and when the negotiation on finance commences challenge the dealer to beat the offer your pre-approved loan terms. The worst case scenario, you found the best deal online, In a best case scenario, the dealership offers you improved loan terms.

 

How do I get a pre-approved car loan?

So having established a pre approved car loan will give you leverage at the dealership, here’s how to get one:

  1. Determine the maximum you want to spend on your car.

 It’s very tempting when car shopping to buy the luxury model or add a few extras without considering the cost of these. To keep the car budget in control you should set yourself a budget number that you can afford to spend on your new car. To help establish what you can afford try our car loan repayment calculator which will estimate the monthly repayments for a nay given any loan amount. As a general rule, your fixed expenses (including your mortgage, insurance, utilities and other recurring expenses) should not exceed 50% of your after tax monthly salary. Where your car loan repayment would be part of that fixed expense calculation.

  1. Compare the options online and get pre-approved for a low rate car loan.

Your objective should be to have your car loan pre-approved before you commence your search for your new car. Many lenders are happy to provide pre-approval so that you can commence your search confident that you have the means to make the purchase.

  1. At the car dealership always negotiate the price of the car first.

Having found a car you like, your focus should now switch to getting the best price on the car using the data from sources such as red book as a guide to what is reasonable. Don’t talk about financing options on the vehicle until you have agreed the price for the car with the dealer.

  1. Having agreed the Car price now and only now discuss financing the car

Now you have agreed the car price the next step is to find the cheapest finance. Armed with your pre-approved car loan, show this to the dealer and give them the chance to better the loan terms.

When comparing any counter loan offer the dealer presents to you, do not simply compare monthly payment savings. To make a like for like comparison you should request that you are provided with the same loan APR for the same loan term as your pre approved loan. For example, if your pre approved loan is 8.5% APR on a 36 month term loan, you should request that the dealer quotes their loan for this same 36 month period, so you are able to compare the car loans on a like for like basis.

 

What car loan options are available?

 

  1. Banks and building societies

All banks, building societies and most credit unions offer car loans where the vehicle you purchase acts as security. The majority of these lenders offer the pre approval feature referenced above, which can be a handy negotiation tool, whilst also providing piece of mind on what you can afford to spend on your new ride.

  1. Dealer finance

Both new and used car dealers will generally look to sell you a finance deal at the time of selling the vehicle, as this adds significant profit to any car sale. Many car deals are now advertised with exceptionally low rates, these attractive rates do tend to come at cost, in that the price you will pay for the car will often be the full retail price, as the low car loan rate gives the dealer no room to negotiate on the cars price.

  1. P2P Car Loans

P2P lenders, who are frequently referred to as "marketplace lenders" or Peer to Peer lenders operate online lending platforms that are designed to match borrowers with investors, and deliver both parties more competitive interest rates than the traditional lenders. By keeping their costs down P2P lenders are able to offer some of the lowest rate car loans in the market, particularly to applicants who have excellent credit reports. SocietyOne was the first P2P lender to launch in Australia back in 2012. The consumer P2P lending market has now grown to 5 lenders including RateSetter, MoneyPlace, DirectMoney and Harmoney, with a 6th player Lendex set to launch in late 2016.