Are All Car Finance Companies The Same?

Nevertheless, finance companies are in business to make a profit and are free to charge whatever they wish for their financial products and this is where the major points of difference come into play. Some lenders choose to cater to niche markets and may be prepared to take more risks than other lenders.

The amount of risk they are prepared to take cannot compromise the responsibilities they have under the national credit legislation however, and they have to take a responsible approach before approving any application.

When it comes to car finance, there are many finance companies on the market and any potential borrower would do well to test their eligibility with a number of them before making a decision. In the majority of instances, car loans are secured, which means that the lender has the option of selling the car to recoup their losses in the event that a borrower defaults on their repayments.

Secured personal loans are often treated more leniently when it comes to assessing applications because of the comfort the lender has by being able to sell the car if the loan goes bad. Nevertheless, they are still obliged to assess the application to ensure that the borrower will not suffer undue hardship and that the loan product is not unsuitable for them.

The major difference between finance companies is the interest rate charged on the flexibility of the loan product itself. When making a comparison between finance companies you should look at the following elements of the loan to determine whether or not it is suitable for you.

* The interest rate. Naturally, the higher the interest rate the more it is going to cost and this is the principal determinant for most borrowers when deciding where to lodge their application.
* Ongoing fees. Whilst interest rate is important, the impact of ongoing monthly fees should not be ignored. For example a car loan of $20,000 at 12% over 5 years will have required monthly repayment of $444.89. But if the loan attracts an ongoing fee of $10 a month, this effectively changes interest rate to 12.98%. The only way to get an accurate comparison is to look at the total monthly repayment and have a financial adviser calculate the effective interest rate for you.
* Application fees. Similarly, application fees need to be taken into account because it affects the overall cost of the loan. A cheap interest rate might attract a high application fee which means you need to tread carefully before making a decision.

The best way to compare the products offered by the various companies offering car finance is to work out the total cost of the loan over the loan term. The total cost is the only way you will get a true comparison.