A fixed interest rate means the repayments stay the same for the term of your loan; a variable rate means the repayments will change with a rate change. To choose what suits you best, consider your budget, current interest rates and whether you are able to handle increased repayments with a variable loan.
Loans with a balloon structure mean your monthly repayments will be lower, but you will have to pay out a lump sum at the end of the loan. Can you afford it?
Loans often incur a monthly account-keeping fee. The amount differs considerably depending on the loan and financier, and can really add up over the term of the loan. A monthly fee of $10 over five years would cost $600.
Check with your financial institution to see if you can make additional repayments on your loan without incurring a financial penalty.
An establishment fee is a one-off cost for setting up the loan. These fees can vary significantly depending on which loan you choose.
If you pay out your loan early, is there a fee? Check your terms and conditions as financiers have varying penalties.
Does your loan repayment amount include Credit Protection and gap insurance so you are protected financially if you are unable to work or your vehicle is written off.
Many loans charge ongoing fees for direct debits and providing statements. Make sure you find out the details, as they can really add up over the term of the loan.
Always ask the interest rate being charged and make sure it’s competitive. Also ask what the comparison rate is to understand the full total cost of the loan. It’s easy to focus on the repayment amounts, which might be based on what you can afford. You need to make sure the loan is both affordable and a good deal.
Some finance contracts with low interest rates stipulate in the fine print that the loan term has to be a specific time period, usually two to three years, which will make your monthly repayments higher. It may suit you to have lower repayments over five, six or seven years.