It goes without saying that Australia is a nation of car lovers. We rely on cars to get us to work and take us on holidays. The latest figures from the Australian Bureau of Statistics show there are 18.8 million registered vehicles in Australia. If you compare that number to the total population, and remember to factor in the children that can’t drive or own vehicles, it paints a clear picture – we are absolutely car mad.
Having the right finance plays an important role in car ownership and when it comes to applying for a car loan there are a number of key things borrowers like to understand before they say ‘yes’.
They want to know the interest rate, the comparison rate, if there are any application fees, ongoing fees or break fees, as well as how much it will cost in total to fully repay the debt. That being said, the most common question that buyers ask remains: “How much will this cost me each month?”. If the repayments are too high, many buyers choose not to make the purchase.
In the current economic environment this makes sense. Wage growth has slowed to some of the lowest levels seen since the start of the 1990s, so Australians are watching their spending. To learn more about wage growth and why now is the time to ask your boss for a pay rise, see our blog here.
So what can car buyers do?
Flexibility in the loan term, and whether it can be extended, may make owning the car more achievable.
While the loan term for many motor vehicles is just 60 months (five years), there are some lenders in the market that offer loan terms up to 84 months – two years extra. Lengthening the loan term can be an effective way of lowering the monthly repayments, meaning there is often more disposable income left over for other essentials.
For example, if you want to buy a $35,000 new car on a loan term of 60 months and the interest rate is 7% per annum, the repayments would be $597 per month. By extending the loan term to 84 months the monthly repayments drop to $477 – a difference of more than $100.
Similarly for a loan on a second-hand vehicle worth $12,000, at an interest rate of 9% per annum, the monthly repayment on a 60 month term would be $216, while on an 84 month term its $176.*
These small differences in cost may make it more attractive and may enable you to make the purchase.
Talk to an adviser
If you’ve been thinking about buying a new or second-hand car, but were put off by how much the monthly repayments would be, talk to an LNS adviser about your options. You might be surprised with how achievable owning that new car really is.
*Both examples calculated using Liberty’s online car loan repayment calculator. Intended as a guide only. Speak to your adviser before taking out a loan.