You may have seen the last couple of posts I have written about buying a new family car. In this post, I am going to look at financing your family car.
The next step for most people is finding a good finance deal that isn’t going to leave you flat broke. Some people may not be in the position to finance a new car, after all you don’t want to live on two minute noodles for the next 3 to 7 years!There are heaps of options when it comes to financing a car, car loan, secured personal loan, unsecured personal loan or you could even borrow off your mortgage.
I don’t want to be in debt forever (although with three daughters that means three weddings. I’m already broke forever), so I am going to have a look at a few different loan types and try and do my best at putting it in simple Dad language. Not that our language is different to any one else’s, just no bull crap finance terms!
Firstly, I’ll take look at car loans. At the moment, I am looking at Westralian Auto Finance. On the plus side, not only do they do offer car loans, they also offer business truck finance solutions for those business owners looking for a new vehicle. A car loan can be used for just that, a car,but there are a couple of different options when to comes to the car loan. You can either have a secured or unsecured car loan and I’ll try my best to explain those next.
A secured car loan is when you put the car up for collateral against the loan. This means if you can’t repay the loan because you’ve gone out and bought the newest iPad,well kiss that car bye bye. A plus side to this type of loan though, is that the interest rate tends to be a little lower. This is because the bank can take away your shiny new car if you fail to pay them. So just triple check that budget and make sure you can afford the repayments for the entirety of the loan.
An unsecured car loan doesn’t require you to use the car as security against the loan unlike the secured loan. You can expect, seeing as the bank can’t repossess your newest purchase, that the interest rate on this loan will typically be higher than a secured loan. Also, expect that the lender will ask for evidence that you can afford a new car. They will use this evidence to assess the risk of lending you money.
When I have purchased a car in the past, I have financed it using an unsecured personal loan. This allowed me to use a bit of extra money for some things, like furniture. Looking back on it, probably not the best move but everyone needs to learn a lesson at some point, don’t they?
Okay, we’ve figured out the different types of car loans, what’s next?
Well when we purchase our new car, we will be financing it. Yes, this is not an ideal situation however in order to pay it off quicker and get back on track with our goal of saving for a house, I wanted to look at ways to pay the loan out quicker.
(Please do not consider anything in this blog post as financial advice and it is important that you consider your own circumstances before making any decisions. Also, speak to your lender about any penalties that may be applied for paying off your loan early.)
A great way of paying your loan out quicker is to pay your loan repayments more frequently. By this I mean, paying repayments weekly or fortnightly instead of monthly. This will lower the amount of interested that is accumulated on the loan because your payment frequency is higher.
Pay extra. Duhhh James, I hear you saying, but how many of us practice what we preach? Especially when we could be out enjoying life! I try to pay an extra $10 each fortnight and when we can spare it, we will make an additional payment. Every little bit counts and you have to think long term here. Sure you are sacrificing play money but in the long run, you’ll most likely be better off financially.
Use additional money to make extra payments. Kids out grown some of their toys? Sell them on eBay! Got at a hobby? Maybe you like taking photos? Why not offer your services on the weekend for money towards the loan! What about that tax refund? Instead of spending it on a new TV or computer (like I do) pay extra on your car loan. You could shave months, if not a year, off your loan. Putting you that one step closer to debt free living!
Finance can be good and bad but as long as you don’t let money rule your life you should be okay! From our perspective, living debt free is a goal that we are striving to achieve! Well apart from owning a house…and paying for 3 university degrees…and 3 weddings…and 3 of everything else…
Have you had a bad experience with financing a car? I’d love to hear about your experiences in the comments below. Also if you have any other good tips on debt free living, share those too!
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