You’ve found the car.
The salesperson is talking about the trade-in, weekly repayments, accessories and finance, and suddenly what started as a vehicle purchase has become five decisions at once.
This is where it can pay to separate the numbers.
If you’re buying a new or used car from a dealer in Newcastle, organising your finance before you commit can help you understand what you’re borrowing, what the vehicle is costing and how the proposed loan is structured.
The Car Price and the Finance Are Two Different Decisions
When you’re sitting in a dealership, everything can be presented as one transaction.
But there are actually several separate numbers:
The price of the new vehicle
The value of your trade-in
The payout on your existing car, if applicable
Your cash contribution or deposit
The amount being financed
The cost and structure of the finance
Keeping those numbers separate makes it much easier to understand the deal.
A repayment that looks affordable doesn’t necessarily tell you whether you’ve negotiated a good vehicle price or whether the finance structure suits you.
Why Organise Finance Before You Start Negotiating?
You don’t necessarily need to have selected the exact vehicle before discussing car finance.
Starting earlier can give you an indication of what information will be required, what your borrowing position may look like and which available lender options could suit your circumstances.
Then you can shop for the vehicle with the finance already being considered.
Once you find the car, the vehicle and final transaction details can be incorporated into the application and lender assessment.
For a buyer who is ready to purchase, that can be considerably better than beginning the entire finance conversation after agreeing to the deal.
Don’t Negotiate Only on the Repayment
A salesperson might ask:
“What do you want to spend per week?”
It’s an easy number to understand, but it shouldn’t be the only number you consider.
The same vehicle purchase can produce different repayments depending on:
the amount borrowed
loan term
interest rate
fees
deposit
trade-in
balloon or residual payment
repayment frequency
For example, extending the loan term can reduce the regular repayment.
Adding a balloon can also reduce the regular repayment.
Neither automatically means the finance costs less.
When comparing options, look at the structure behind the repayment.
Know the Actual Purchase Price
Before focusing on finance, establish what you’re paying for the vehicle.
That sounds obvious, but dealer transactions can include extras such as accessories, protection products, warranties and other optional items.
If those costs are added to the finance, you’re borrowing money to pay for them as well.
Ask yourself:
What is the vehicle price?
What extras have been added?
Which extras do I actually want?
What is the final amount I am financing?
A $50,000 vehicle can become a substantially larger finance transaction once other costs are added.
Understanding the final amount financed matters.
What If You Have a Trade-In?
A trade-in can make the transaction convenient, but it introduces another number that should be considered separately.
Find out what the dealer is allowing for your existing vehicle.
If you still have finance owing, also establish the current payout figure.
Suppose your existing car is valued as a $25,000 trade-in and its finance payout is $18,000.
There is a $7,000 difference that may contribute towards the changeover.
Now consider the opposite.
If the trade-in is $25,000 but the existing finance payout is $30,000, there is a $5,000 shortfall that needs to be dealt with.
The trade-in value alone doesn’t tell you your position.
You need to know the payout as well.
Be Careful With Negative Equity
When the amount required to pay out your existing car loan is higher than the value of the vehicle, you have a shortfall.
That shortfall doesn’t disappear when you buy another car.
Depending on the transaction and lender requirements, it may need to be paid from your own funds or otherwise addressed as part of the proposed purchase.
This is one reason to obtain the existing payout figure before negotiating the next vehicle.
You want to know the real cost of changing cars, not discover it after you’ve already agreed to buy.
Dealer Finance Isn’t the Only Finance Option
Dealership finance can be convenient because you’re already there buying the vehicle.
But convenience and suitability aren’t necessarily the same thing.
You can also investigate finance separately through a broker.
A broker can consider your circumstances and available lender options rather than the finance simply being another part of the vehicle sale.
The important thing isn’t to assume that one channel will always be cheaper than another.
Compare the actual finance being offered.
What Should You Compare?
When looking at car finance, don’t compare the interest rate alone.
Depending on the type of loan, consider:
interest rate
comparison rate where applicable
establishment fees
ongoing fees
loan term
repayment amount
repayment frequency
balloon or residual payment
early repayment conditions
total amount repayable
Two loans can finance the same car and still produce quite different outcomes.
What Is a Balloon Payment?
A balloon or residual leaves part of the financed amount outstanding at the end of the loan.
Because you aren’t repaying that portion through the regular repayments during the term, those repayments can be lower than they would be without the balloon.
But the balloon still exists.
At the end of the loan, you need to deal with it.
Depending on your circumstances at that time, that could involve paying it from your own funds, selling or trading the vehicle, or investigating whether refinancing is available and appropriate.
When you’re comparing dealership or other finance options, make sure you know whether the repayment being quoted includes a balloon structure.
A lower repayment isn’t meaningful unless you understand why it is lower.
What About a Deposit?
A deposit reduces the amount you need to finance.
But whether you should contribute a larger amount isn’t simply a question of making the repayment smaller.
Think about your broader financial position.
You may prefer to retain some savings rather than putting every available dollar into the car.
Alternatively, reducing the amount borrowed may be important to you.
The appropriate approach depends on your circumstances.
Lender requirements can also affect how much of the purchase price can be financed.
Don’t Forget the Loan Term
Car buyers often concentrate on rate and repayment while overlooking the term.
A longer term generally spreads repayments over more time.
That can make the regular repayment smaller, but it also means the debt remains in place for longer and can increase the total interest paid.
Think about how long you expect to own the vehicle.
Financing a car over a long period when you expect to replace it much sooner can create problems later if the loan balance hasn’t reduced as quickly as the vehicle’s value.
What Information Will You Need?
Once you’re ready to proceed, the lender will need information about you and the vehicle.
Depending on the application and lender, this can include:
identification
employment information
income details
living expenses
existing financial commitments
vehicle details
dealer invoice or purchase contract
trade-in details
payout information for existing finance
Additional information can be requested depending on your circumstances.
Providing accurate information early can help avoid delays once the vehicle has been selected.
Already Standing in the Dealership?
You can still speak with a broker.
You don’t have to accept finance simply because you’re physically at the dealership.
Before signing finance documents, make sure you understand what you’re agreeing to.
If you want another finance option investigated, contact your broker with the vehicle details and proposed purchase price.
Where possible, avoid creating unnecessary pressure by agreeing to deadlines before you know whether the finance can be arranged.
What Happens Once Finance Is Approved?
Approval isn’t necessarily the final step.
The lender still needs the information and documentation required to settle the transaction.
With a dealer purchase, this generally includes the final vehicle and invoice details.
Any conditions attached to the approval also need to be satisfied.
Once the lender’s requirements are complete, settlement can take place in accordance with the lender’s process.
That’s why having the finance underway before vehicle collection day can make a difference.
Buying New or Used From a Newcastle Dealer
Dealer car finance isn’t limited to brand-new vehicles.
Eligible used vehicles purchased through licensed dealers can also be financed, subject to lender criteria.
For used vehicles, factors such as age and value may affect which lenders are suitable.
If you’re considering an older vehicle, it can be worth checking the finance position before committing to the purchase.
A Car Purchase Should Still Make Sense After the Excitement Wears Off
Buying a new car is exciting.
Finance lasts considerably longer than the test drive.
Before signing, make sure you understand:
what the car costs
what you’re trading
what you still owe
what you’re borrowing
how long you’re borrowing it for
whether there’s a balloon
what fees apply
what the repayments are
and what the finance is expected to cost overall
Those are the numbers you’ll still be dealing with after the new-car feeling has worn off.
Car Finance in Newcastle
Thrive Broking assists customers in Newcastle and surrounding areas with finance for eligible new and used vehicle purchases.
Whether you’ve already found a vehicle or you’re about to start shopping, we can discuss your circumstances and investigate available lender options.
You don’t need to wait until the dealership asks how you’re paying for the car.
Getting the finance conversation started earlier can help you understand your options before you commit to the purchase.
Found a Car and Ready to Buy?
If you’re negotiating on a vehicle now, send us the details of the car and the proposed purchase.
If you’re still shopping, you can start the finance conversation before you’ve selected the exact vehicle.
Thrive Broking can discuss your circumstances, investigate available finance options and help you understand the proposed loan before you sign.
All finance is subject to lender eligibility, assessment, approval and applicable terms and conditions.