Buying a used car is a great way to solve your automotive woes without causing too much damage to your hip pocket.
While price is one of the more obvious reasons why many Australians opt for used car purchases over new, used car purchasers also benefit in a number of ways. When you buy a used car you can bypass instant depreciation, save on insurance, and you also have more choice.
When it comes to paying for your used car, you have more choice, too.
The most popular ways to finance used cars are secured car loans, unsecured car loans, dealer finance and borrowing against home equity. Here’s how they all work:
Secured car loans
A secured car loan uses the car as a sort of security against your loan, and generally, because of this security borrowers get a lower interest rate than an unsecured car loan. Secured car loan products for used cars vary considerably across lenders. They each have different requirements for the maximum age of the car.
Unsecured car loans
Unsecured car loans do not require your car to be secured to the loan as an asset. You may opt for this option if your used car’s age exceeds the maximum age requirements for lenders. Due to the lenders higher perceived risk, borrowers for this type of loan usually have to pay a higher interest rate.
Home equity refinance
You may have equity in your home that you can access by refinancing to release a lump sum of cash to make a used car purchase. Some borrowers choose to do this as it may reduce interest repayments. This approach also means you are paying just one loan, rather than multiple. This approach is subject to the structure of your home loan.
If you’re purchasing your used car from a dealer, it’s likely they will approach you with an in-house finance product. Dealer finance rates can be high, especially after low rate promotional periods, and can be less flexible with repayment, redraw and lower credit scores.
The key features to look out for when choosing how to finance your used car are rates, fees and flexibility.
Even if you have low credit or average credit, these option are still available to you.