How to Compare Car Loans

Many people miss the point when they attempt to compare a range of different car loans. Often, they look at only one factor – usually the interest rate, but sometimes also the monthly repayment. The truth about comparing car loans is a little more complicated than that.

It’s important to understand the detail because significant savings are on offer for those who do their sums correctly.

Here’s how to get a car loan comparison right.

In reality, the main factor in comparing car loans is: How much is this automotive loan really going to cost me, in total? Say you’ve got three of four different car loans in front of you – all for the same amount, all for the same term – the best way to compare them is to add up the total amount payable over the term of the loan. This would mean starting with the establishment fee, plus broker or dealer origination fees (if any) and then taking the regular payment (whether it’s weekly, fortnightly or monthly) and multiplying it by the total number of payments. You also need to add in any regular charges, such as monthly account keeping fees.

Getting the total cost of each loan right is vital because the fees and other charges can have a huge impact on the cost of the loan overall. In fact, fees and other charges can mean that a high-fee loan with a really sharp-sounding 6% notional interest rate might actually be more expensive overall than a low-fee car loan at a more expensive-sounding 10%.

You really owe it to yourself to do the numbers on each and every car loan offer, and not merely focus on the one factor, like a nice, low interest rate number.

Exactly the same comparison method applies to commercial car finance agreements as well – provided it’s an apples-for-apples comparison. You’ll need to make sure they’re all, say, operating leases, and the term and amounts are identical. In the case of a residual or balloon payment at the end of the term, this amount would need to be the same as well.

Once you have those comparative numbers ballparked, you should also evaluate the early repayment penaly. Some loans with low setup costs impose hefty penalties for early repayment – although this might not be important to you if you deem it unlikely that you will exit the car loan agreement early.

Finally, you need to make sure that you qualify for the cheapest loan you have identified. You also need to make sure the vehicle itself is one that the lender is prepared to lend you the funds for, on those terms. This is where a specialized New Zealand-based business like CarLoans.co.nz can become a valuable resource. Our friendly consultants have access to a panel of reputable lenders, and we can help you select the best deal for you after considering all the relevant factors. Call or e-mail today for an obligation-free car finance appraisal.