To secure your car loan, it's necessary to have your vehicle finance application ready and pre-approved at the time of purchase of the vehicle.

The main question is how to secure the perfect car deal in Australia. You need to select a car which meets your individual requirements perfectly, to get a price which fits your budget and to finance the purchase affordably.

If you intend to use an auto loan for financing the car purchase, you need to know how to get the best possible one.

Advance planning is the most effective method for securing the best car loan. You need to be prepared to get finance at the time of purchase of the vehicle. You may want to consider pre-approval as well since it will give you more bargaining power when you work with a car dealer or an individual seller. With proper preparation, you will have the highest chances of approval and of securing a favourable interest rate.

You will certainly save time, effort and money.

6 Steps to get the best out of your vehicle loan

1. Give Your Credit Score a Boost

Since micro lenders calculate your credit score when you apply for a loan based on your past history as a borrower, you would want to make sure that it is as good as possible. As a start, you need to request the free credit report which you are entitled to every year.

Go over it carefully and mark any errors.

You need to have this errors fixed before you make an auto loan application. If you have missed or late payments on your record, you should take care of these immediately. It pays off to improve your credit record, because a higher credit score will give you higher chances of approval and of securing a lower interest rate as well.

2. Calculate How Much You Can Afford to Spend

You have to ensure that you will buy a car which is affordable to you. You should determine a precise amount which you can afford to spend or a budget with an upper and lower limit for more flexibility. You need to calculate the deposit amount which you can afford to put down given the size of your savings and your spending plans. Then you need to do the math to see what portion of your monthly income you can set aside for repaying the car loan. Use these numbers to determine how much you will have to borrow.

You should try to be practical when buying a car and set emotions aside. This is because dealers will exploit the fact that you have fallen in love with a more expensive car to sell you a more expensive loan as well. In such situations, they typically offer a larger loan amount for a longer term. In this way, the regular payments are smaller, but the loan becomes quite costly since interest is paid for a longer period of time.

3. Make Longer-Term Plans

It is important for you to plan ahead since a car is an asset which you will use for years while the typical auto loan has a repayment term of over a year. You should start with calculating the total loan amount based on the deposit which you can put down and on the regular payments which you can afford to make.

It is tempting to place a smaller deposit now and to take out a larger loan amount. The problem with this strategy is that the larger amount will make the loan more expensive. Eventually, you may own more on the vehicle than its value since modern cars tend to have a fairly high rate of depreciation.

Your best bet is to use a loan amortisation calculator or spreadsheet to determine the precise interest and principal amounts which you will pay back on a regular basis. In this way, you will know how much equity you will be gaining in your car with time. Then you need to compare this to the rate at which the value of the vehicle will depreciate. You have to ensure that you will avoid the so called upside down loans. With such a loan, the car loses value more quickly than the rate at which the outstanding balance on the loan decreases.

4. Consider Saving with the Use of Insurance

You may be able to get a lower interest rate on a car loan in Australia if you own life insurance or disability insurance. When you are covered, the risk for the lender is lower.

Even in case of death or disability, the lender will be able to receive what is owed to them. Because of the lower risk which they assume with insured borrowers, lenders can provide lower interest rates to such individuals. It is important to note that lenders do not require insurance to get you approved.

It just helps for getting a more favourable deal.

5. Shop Around for a Loan

Car loans are available from car dealers, banks, credit unions, finance companies, micro lenders and peer to peer lending platforms operating in Australia. You should compare as many finance options as possible. This will give you the highest chances of finding the best deal. You need to base the comparison on a set of major factors. These include interest rates, fees, loan term, regular payment size and total loan cost.

Use the information which you have found during your research for negotiation as well.

6. Make Provisions for Early Repayment

You should choose a loan which has a flexible repayment structure.

In this way, you will be able to make additional payments and pay it off quicker. As a result, you will save on interest. You have to ensure that you will not incur fees for making additional payments. Similarly, there must be no penalty for early repayment of the loan. You have to read the terms and conditions of the loan agreement with extra care as charges like this are often not presented in a straightforward manner.

By following these steps, you will obtain the best car loan in Australia.