Simplify Secured Car Loan
From 6.5% p.a.
- Borrow up to $500,000
- Min. loan amount: $5,000
- Loan term: 1 to 5 years
- Establishment fee: $100-$500
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When shopping for a new car you may be surprised to see dealerships offering new car loans at a 1% p.a. or even 0% p.a. interest rate. At first glance, this offer is as it appears. You purchase the car at the advertised price and then make monthly repayments on the principal of the car without any interest being applied to it.
However, while it may sound like a good deal, there are a number of things you should be aware of before committing to a 0% loan. Keep reading to find out how 0% car finance actually works and if its right for you.
Interest-free car loans are offered by dealerships and typically used as a sales tactic. While you won’t pay any interest on the loan, you may not save money compared to a normal car loan. The dealer will usually charge you a higher price for the car, or add on extra fees which end up costing you more than any interest repayments would.
This is also generally true of dealerships offering 1% finance. The total cost of the loan may be greater than a regular car finance option that charges a higher interest rate.
The 0-1% interest loans tend to be offered for a certain period of time. Afterwards the loan reverts to a higher interest rate. You may also have to make a large lump sum payment at the end of the loan, this called a balloon payment. Balloon payments do lower the size of your repayments but you have to fork out a large lump sum at the end which you have to budget for.
As with any financial product, it’s important that you understand the terms and conditions of 0% car loans, and always read the fine print to discover any hidden costs. Remember, when searching for a car loan, always compare a range of different loans to find the finance option that’s right for you.
Here are the main points to keep in mind:
This depends. A 0-1% car loan won’t necessarily cost less than a normal loan with a higher rate. It may come with additional fees or costs, or charge you a high price for the car.
Interest-free car finance offers will also generally require you to make a balloon payment at the end of the loan term. This reduces the size of your regular repayments but will need to be budgeted for throughout the loan term to ensure you can cover it.
By comparison, standard car loans require you to pay more interest, but the repayments you make will be consistent and your debt should be paid off in full within the loan term. This type of loan structure may make it easier to budget for and give you greater peace of mind.
When it comes to 0% car finance, a deal may work in your favour depending on its terms and conditions. Consider the pros and cons below when comparing.
Before you lock yourself into this type of arrangement, always compare a range of loan products. While paying 0% or 1% interest on your car finance may seem the best option, this isn’t always necessarily the case. You may be able to save money by using a regular car loan.
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