Before you close the deal, it's important for you to have explored all your financing options: while car financing may be the best option for many people, it may not be suitable for you. By arming yourself with research, you can ensure your choice gives you financial freedom but doesn't leave you in debt. Here is Allianz's guide to financing and insuring your new car.
Before you decide on a car financing strategy, it's best to first assess your financial situation. This is to ensure that your strategy accurately reflects what you can afford so that you do not end up in a repayment agreement that you cannot fulfill. It might be a good idea to seek professional advice before taking out a car loan or lease.
Taking out a loan and entering into a lease are two financing options available to you. Car loans are like personal loans, but the money must be used to purchase of a car. The two main types of car loans are secured and unsecured, and a novated lease is another option that may be available to you.
1> Secured loans - In the case of a secured loan, the borrower uses the car itself as collateral in the case that the loan cannot be repaid: if you default on your loan, the lender can take the car away from you. Because there is less risk for the lender, these loans are more easily granted, the interest rates are generally lower and the amount loaned may be higher than for unsecured loans.
2> Unsecured loans - An unsecured loan does not require security in the form of a car. Instead, these loans require you to show evidence that you are able to pay off the loan. Interest rates on these loans may be higher than on a secured loan.
3> Novated lease - This is a way of salary packaging a car. With a novated lease you enter into an agreement with your employer and the financier of the car lease and if your employer obliges, he or she will pay the monthly lease rentals from your pre-tax income.
Car finance and insurance
Depending on the company you choose to finance your car with, you may be required to take out car insurance for the vehicle you intend to purchase or lease. Before you sign anything, you should check the obligations of the agreement with regards to insurance.
Whether or not it's a condition for the loan/lease, car insurance is an important way to protect yourself financially when driving on the roads. And it's all the more important when you are financing your car with borrowed money; accidents and thefts do happen, and without car insurance you could be left without a car and with a large sum of money waiting to be repaid.
Things to Keep in Mind
There are upsides and downsides to each car financing strategy but the ideal strategy for you would be the one that suits your financial situation best. Being unable to repay a loan or fulfill the obligations of a lease could land you in hot water.
If you fail to repay a secured loan, the lenders are entitled to repossess and sell your car as a means to cover their losses. If the vehicle sale doesn't cover the full amount of the loan, you will have lost your car and still have money owing. Failing to repay an unsecured loan could land you in court and the credit provider may be permitted to sell your property in order to recover the money borrowed. If you have a novated lease agreement and your employment ceases for any reason, you may be required to continue paying the monthly lease rentals for the remainder of the agreed period of the lease.
Buying or leasing a car requires a steady financial commitment and the right decision may take significant research and planning. When you take out a loan or lease, you are legally bound to meet the conditions of those agreements. Theft or unexpected damage to your car could increase your financial burden and make it difficult to fulfill obligations. Comprehensive car insurance from Allianz Australia is there to protect the investment in your vehicle. If you are planning on buying a car with finance, get a comprehensive car insurance quote from Allianz today.