Inflation is biting hard on household spending and business bottom lines and unfortunately, the RBA has indicated the rate of inflation is set to rise further in 2022. Those intending to purchase consumer goods such as cars, motorbikes, boats and caravans this year will be sure to be seeking ways they may be able to save on both the goods and the finance. There are a number of actions and steps that buyers can consider to make savings on their car loans, motorcycle loans, marine finance and caravan finance. Savings and reductions in monthly outgoings which may mean the purchase is still viable despite the current economic conditions.
Let’s start with qualifying the definition of ‘savings’. This can have varying interpretations and relevance to different people depending on their financial objectives. In this discussion we are considering a range of strategies and approaches which will enable buyers to reduce the cost of the car, motorbike, boat or caravan loan in a range of areas.
The areas we will be addressing are:-
- Interest rates and how a lower rate can be achieved and reduce the cost of the loan.
- The total sum of the interest which accrues on finance over the loan term and how that may be reduced to realise a real savings.
- Reducing regular outgoings by securing a lower monthly loan repayment figure.
- Making upfront decisions based on longer term plans which can avoid certain fees down the track.
While most lenders focus entirely on interest rates, and that definitely is our key focus at Jade Finance, we also want our customers to have the knowledge of how they can better structure their loans to achieve savings. We share our expertise to add to your personal knowledge bank and assist with your purchasing decisions.
Getting Cheaper Interest Rate Loans
Interest rates have started to increase after a long period of record lows as the RBA seeks to arrest the surge in inflation and normalise monetary conditions. This means rates will be higher across the consumer finance market. To be offered the cheapest interest rate available, loan applicants can consider a number of issues:-
- Maintain credit score in the good range. The cheapest rates advertised across the lending market are for applicants with good credit and for new goods (unless otherwise stated).
- Prior to applying for a new loan, look at ways to improve your score to ensure you are best-placed to be offered the cheapest interest rate loan. Assistance in how to do this is provided for you at Moneysmart.
- Be savvy in the choice of lender you make. Consumer finance rates do vary from lender to lender and the variations in some cases can be significant. Refer to our Interest Rate Comparisons for an illustration. Jumping into a loan offer from say a dealer or applying to a finance company or bank based purely on the fact that you had a loan from them previously, may not result in the cheapest deal. Using our services allows for a vast section of the lending market to be covered in order to uncover the cheapest interest rate available to meet your requirements.
- Don’t wait. Interest rates are strongly tipped to be rise several more times over coming months. The longer you delay your purchase and loan application, the stronger the possibility that rates will be higher.
- Make sure the loan includes a fixed interest rate which is fixed for the entire loan term. We do see some ‘too good to be true’ offers where the promotional rate is only for a limited time after which it soars to over-the-market rates.
Cutting the Costs of the Total Amount of Interest
While many focus on the actual interest rate as it does determine the overall cost of the finance, attention can also be paid to that overall interest cost. That figure is the real amount you are paying for that car, bike, boat or caravan. So if you can reduce that, then the goods become effectively less expensive.
The total of the interest on a loan is calculated with 3 figures – the amount of the loan, the term of the finance and the interest rate. We addressed above the interest rate so now we’ll look at the other two elements and how you can vary these to make a savings.
Reduce the loan amount being requested by either selecting a less expensive make or model or by considering a deposit. We offer no deposit finance and during the record low interest rate period this was a very attractive option. But by paying even a small deposit to the seller, the loan amount is reduced and hence the loan accrues less interest.
The term of the loan can also be considered. A longer finance term results in a lower monthly finance payment but more interest in total as interest is calculated per annum. So opting to manage a higher finance repayment per month over a shorter finance term can result in reducing the total interest on the finance. Thus realising a saving on what you are paying for the goods.
The total finance cost can come into stark relevance at resale time.
Save or Reduce Loan Payments
For some loan applicants, a ‘savings’ can mean getting lower repayments each month. This is the amount that will need to be met each month and can be the most relatable and relevant to many people. Especially relevant in this current inflation surging period.
Using a Loan Calculator enables buyers to see exactly how the term of the finance and the interest rate interact to vary the repayment. As discussed above, the loan term can be varied to change or save on repayments. It won’t realise a reduction in the cost of the loan but it will reduce the monthly burden.
Not all banks and lenders will be negotiable on loan terms to achieve the target repayment amount. But when using Jade Finance as your lender, you have the expertise and bargaining power of our consultants to negotiate the best loan structure possible to meet individual objectives.
Long Term Thinking to Reduce Some Charges
It may seem strange but when you are applying for finance on new goods, it can be worthwhile in regard to savings, to consider how long you plan to own the goods. This ownership period can be tied in with the loan term to avoid early payout fees.
If goods are sold or traded while under finance (before the end of the loan term) pay out fees can apply. These can be avoided by ensuring you own the goods through the full term of the finance. For example, if you upgrade your car every 4 years, then requesting a 4 year and not a 5 year finance term would make more sense.
In this period of rising inflation, rising prices and rising interest rates, it is more important than ever to take a broad-based, wide and encompassing view when applying for finance. With our assistance, buyers can realise savings or reductions in a number of areas which can be significant in supporting their financial goals.
For further personal assistance with individually-sourced and structured finance contact Jade Finance 1300 000 008
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.