While the interest rate on a new car loan is a good indication of whether you’re getting a good deal or not, there are other factors to look out for.
Some deals are sharp and can save you thousands of dollars, whereas some offers, especially those around end of year sales, can lock customers into a big lump-sum payment at the end of the life of the loan. This is equivalent to more than half the original purchase price of the car.
This residual payment is known as a balloon payment and typically should be around 20 per cent of the purchase price, so buyers are not caught out owing more than the car is worth at the end of the loan.
As a new car buyer you need to read the fine print of special offers and make sure there are no hidden extra costs. If you can’t afford the balloon payment at the end of your loan you may have to take out another loan to pay the remaining portion.
Other things you might want to look out for include the loan term i.e. the length of the loan and break clauses within the loan as this will affect the total amount of interest you end up paying.
If you’re not confident you understand the terms and conditions of a new loan, make sure you speak to someone who does. You don’t want to commit to something that you can’t afford.
Always shop around and get more than one quote, and that applies to the purchase price of the vehicle as well as the loan.