Things to Consider Before You Buy

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Things to Consider Before You Buy

There’s a lot to think about before you buy. In this section we look at the key things for you to consider:

Getting Prepared – What to budget for

Finance Eligibility – What you need to qualify for finance

How long will it take to organise the finance? – How quickly can you expect things to be finalised

What can you include in the finance? – What type of extras can be included

Selling your car or another asset – Selling privately or trading in

Other things to think about before you buy – Know who you’re dealing with, What happens if your circumstances change, Signing a Business Purpose Declaration

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Getting Prepared

‘By failing to prepare, you are preparing to fail’. When Benjamin Franklin, one of the founding fathers of the United States, said these words he wasn’t talking about preparing to buy and finance a new vehicle, boat, caravan or even a new horse and cart but his wise words are very relevant. By doing your research in advance you can avoid the buying pitfalls and make sure that you get a great deal.

What to budget for before you buy:

Costs that are part of the sales price – If you are buying a new asset such as a car, ute or van, for example, you will be charged for dealer delivery, stamp duty and any options or accessories that you select.

Dealer delivery – This charge is to cover the costs that the dealer incurs for taking delivery of the vehicle from the manufacturer, including administration, detailing the vehicle, insuring the vehicle as well financing costs.

Stamp duty – The amount of stamp duty payable varies according from state to state and is included within the retail price quoted.

Options and accessories – What’s included as standard equipment varies from manufacturer to manufacturer. When doing your research make sure to find out what is included and what you are going to have pay extra for. Whilst the glossy magazine adverts and sexy TV promos may feature images of the top of the line models, the retail pricing quoted may be based on the basic entry model version. So if you’re looking at a new vehicle and things like automatic transmission, metallic paint and alloy wheels are important to you, check out if they are included or if you will have to pay extra for them.

Running costs – These are the ongoing and recurring costs that you’ll have to pay.

Registration – Amounts vary according to the type of asset and the individual state or territory rates. Rego is normally payable on a quarterly or annual basis.

Servicing & Maintenance – If you’re buying a new or nearly new asset that is under manufacturer’s warranty you will need to keep the vehicle serviced in accordance with the manufacturer’s recommended service intervals to ensure that you keep the warranty valid and up to date. Service intervals vary from one manufacturer to another but you can expect to have to pay for at least one service per year. For a used asset a minimum of an annual service to ensure safety and reliability would be highly recommended.

Insurance – If you are financing the asset and using it as security for your loan or lease you will be required to comprehensively insure it. Even if you’re not financing it, insurance would still be well worth considering. The cost of repairing, or worse replacing, the asset in the event of the unexpected could set you back thousands of dollars. Most insurers now offer pay by month facilities so you don’t have to pay the full annual premium upfront.

Fuel – Calculate your fuel costs by checking the average fuel consumption of the asset that you’re buying and considering your estimated usage. If you’re looking at an updated version, one of the positives is that with improved technology the fuel efficiency could be far superior to what you’re replacing. As long as fuel prices remain reasonably stable then upgrading could well give you a saving on your fuel costs.

Roadside Assistance – If you’re buying a vehicle then you may want to consider roadside assistance. If you’re looking at an older vehicle and you drive higher kilometres roadside assistance provides peace of mind and valuable support for a low annual outlay.

Finance eligibility

If you’re planning to finance your purchase consider whether you’ll meet the standard criteria to be eligible for a loan or a lease.

Every bank and finance company differs in their approach but generally you’ll be required to meet the conditions outlined below. If you don’t then your chances of obtaining finance, especially from a mainstream lender, are slimmer. That’s not to say that it’s impossible and speaking with a specialist finance broker who knows which lenders may be able to assist someone in your circumstances is your best bet.

Be at least 18 years old.

This is a non-negotiable. You won’t be able to get finance in your own name if you are under 18. Some parents may take out a loan on behalf of their kids but generally lenders want to see the user of the asset involved in the finance agreement.

In addition young borrowers who are over 18 may also face some challenges. Lenders are often wary of younger borrowers as their general lack of stability makes them a higher risk. You may have to consider a guarantor (mum or dad) or even a co-borrower to help strengthen your application.

Be a current Australian resident (Temporary residents may still be eligible but it will usually depend on the type of visa that they hold and how long is remaining on it).

Non-residents are considered to be a higher risk because they may not have strong enough ties to keep them in Australia, and they may leave behind unpaid debt. It’s not unusual for finance companies to collect cars from airports that have been left behind by temporary residents who have no plans to return!

If you are a temporary resident then you may be required to put in a higher deposit, which shows a greater sign of commitment and gives lenders more confidence.

Have a regular income.

The income that you receive will have to be sufficient to cover your living costs, expenses and your finance repayment amount. If your individual income is insufficient then you may be able to do a joint application with a partner or parent.

Not be a bankrupt and preferably have a good credit rating.

If you have had credit problems in the past you may have to consider what is commonly known as a bad credit loan. Many lenders may overlook small defaults with telecommunication or utility companies but would be likely to take a dim view of larger amounts and defaults on loans or credit cards.

If you have a poor credit history then lenders will consider you to be a higher risk. As a result some lenders will not offer you a loan at any price. Other banks and finance companies who may consider your finance application will most likely charge higher interest rates. They operate on what is known as a rate for risk basis – in exchange for higher interest rates they will take on what they consider to be higher risk. This will make your finance and repayments more expensive.

Some lenders deal specifically with bad credit loans. They are often happy to take the risk to approve loans for people with credit history problems because they’ve handled many similar situations previously and have become expert in the area.

If you do get a bad credit loan you can potentially use this to improve your position for the future. Demonstrating an ability to borrow responsibly and make your repayments on time can help you in the process of repairing your credit history and put you on the road to lower interest rates.

Make sure you know exactly what you’re getting into before you sign up for a bad credit loan. Consider the fees and interest charges, the repayment amounts, the total amount payable, the term of the loan as well as the option to make extra payments.

Options are available no matter if you’re buying from a dealership, auction or a private sale.

Be looking to borrow at least $5,000.

All lenders have minimum loan criteria and generally the mainstream lenders won’t lend less than $5,000. If you need less then you may need to look for a more specialist lender.

Help is available if you don’t meet the standard criteria – If you meet the above criteria there will generally be plenty of options available to you, but if you don’t there’s no need to despair because finance brokers specialise in finding solutions for people who don’t necessarily tick all the boxes.

How long will it take to organise the finance?

Application

Each individual case is different and the speed of the application is usually dependent on a few key factors:

The lender

Some lenders, especially those that provide point of sale finance at retail outlets, dealerships, car yards etc., specialise in giving fast decisions. They often have electronic credit scoring systems that are capable of making instant decisions on some applications as well as large lending teams that specialise in analysing credit applications to provide decisions within hours.

If you need a quick decision on your application beware of rushing into a loan or lease because it seems convenient. A pre-approval can be more effective as it allows you to shop around in the knowledge that your finance is already in place and you can concentrate on getting the best deal.

Be aware that finance brokers also have access to many of the same banks and finance companies as the dealerships so they can offer fast approvals in the same way. The main difference is that finance brokers have a wider range of lenders to choose from.

Banks can sometimes be slower with their application processing times. Most do not assess applications at the branch any more so they are sent off to central processing centres with the decision then being returned via the branch.

The asset

Generally the more common the asset is the simpler and quicker the application process is. Cars, utes, vans and motorbikes are straight forward assets for most lenders so you can usually expect to get a quick decision on your application.

Trucks, boats, jet skis, caravans and motorhomes are regarded as more specialist types of assets and as a result the application can take longer as more work is required to analyse the application.

The applicant

Applications for individuals are usually less complex which makes them easier and quicker to assess and make a decision on. The more complex the type of applicant the more time and more information is required to reach a decision. For example, a larger business with a more complicated structure will usually have to wait longer for a decision then an individual or a sole trader business.

*Make sure you take care with the information that you provide for your finance application. Honest and full disclosure is required otherwise your approval may be withdrawn. Once you have received your approval you will also be informed of any paperwork that you need to provide, for example, your driver’s licence, council rates notice or rental agreement, current payslips etc.

Loan settlement

Once your finance approval is in place and you’ve arranged to buy your asset the next step is to organise for the loan to be settled.

Once you’ve provided any paperwork that the lender requires and you’ve signed the finance documents then the lender will arrange to make payment. Nowadays paperwork and documents can normally be emailed so the process can be quick and easy. So as long as you are organised and provide the required paperwork and attend to the documents promptly getting the keys to your new asset shouldn’t be too far away.

If you’re using the asset as security for your loan or lease then normally the lender will make payment direct to the seller. Once they can see the funds in their bank account they will give the OK to take delivery.

It is not unusual for it to take just 1 to 2 days from submitting your application to you taking delivery.

What can you include in the finance?

Depending on the amount that the lender is prepared to approve for your finance application you can include a range of expenses in your loan even if you are using the asset as security.

As long as the expenses fit within the maximum loan amount that you are approved for most lenders are happy to finance the cost of:

Dealer delivery
Stamp duty
Options and accessories
Registration for 12 months

Many lenders are also happy to include the cost of:

Comprehensive insurance
Extended warranty
GAP insurance
Loan protection insurance
Minus equity from a previous loan

Remember that the more extras that you include within your loan the higher the loan amount will be. The higher the loan amount the more interest you will be charged. So consider paying outright for some of the costs if possible. For example, if you include comprehensive insurance within your loan you’ll be charged interest over the full term for a policy that covers you for just the first 12 months. Also, after 12 months you’ll have to take out a new policy which you won’t be able to finance in the loan.

Selling your car or another asset

One of the main things to organise if you’re planning to buy a new car, ute or motorbike, for example, is how you are going to sell your current one. The first question to ask yourself is, are you going to sell it privately or trade it in with the seller of your new asset. Both have their benefits and things to consider.

Private sale – Selling privately will require more work on your behalf but could help you get a much better price.

Pros

Higher sales price – Selling privately should help you to achieve a better price. Depending on what asset you’re selling and how old it is you’re probably in competition with retailers and dealerships. Because they’re commercial businesses and have much higher costs than you their pricing expectations are higher. You may be able to advertise at a price well below there’s and still get a sales price that you’re very happy with.
Lower finance amount – The better the price that you sell for the less you’ll need to borrow. A lower financed amount means less interest and lower repayments for you.

Cons

Time and effort – You’re going to have to put the work in to advertise, demonstrate and negotiate the sale.
Selling and negotiating – If you’re not comfortable marketing your asset or haggling to get the best price selling privately may not be the best option for you.

Things to consider

Advertising – Selling privately means that you will have to take responsibility for advertising the asset. Whilst there are some free ways to advertise, the best options, for example internet and newspapers, come at a cost. In your advert be precise in the description of your asset and avoid using jargon.
Potential buyers – Be on your guard because not everybody may be as honest as you. Make sure you get the contact details and drivers licence details of anybody that takes your asset for a test run. It’s even worth considering getting something of value from them to ensure that they come back, their car keys for example. Beware of the type of payment that you are prepared to accept, a bank cheque would be the preferred method. Don’t let anybody push you into the sale if you’re not comfortable with the buyer or the price being offered.
Insurance – Check that your insurance and the potential buyer’s insurance covers them to take your asset out for a test run.
Setting a price – Do your research and check out websites and classified adverts to get a good feel for the prices being asked for assets similar to yours.
Preparing for sale – A good interior and exterior clean, or even a professional detail, is certainly a good idea. If you’re selling a vehicle making sure that the tyres have enough thread and are fully inflated as well as checking the oil and fluid levels is also a good move. Providing a vehicle history check report and service history may also make you stand out from the competition.

Trade-in

Trading in with the retailer or dealership where you are buying your new asset from is normally a simple process but it may not be the most rewarding method.

Pros

Convenience – Trading in can be as simple as dropping off your asset when you go along to collect your new one. You agree a price as part of the sales negotiation and that then becomes part of the overall transaction.
Simple process if you already have finance –Using a trade-in facility can be a simple way to get your new asset and pay off your existing loan or lease at the same time. The retailer or dealership take the asset as a trade-in and then pay off the existing finance. Any equity derived from what it’s worth compared to what is owing is carried over into your new purchase and can be used as a deposit. This way you don’t need to worry about paying off the finance before you sell the asset.

Cons

Lower sales price – The trade-off for convenience is generally a lower price for your asset.

Things to consider

The overall deal – You need to look at the overall deal when you are trading in. If the retailer or dealership picks up on your eagerness for a good trade-in price they may well inflate it to keep you happy but then sell you the new asset for a higher amount than they would otherwise have been prepared to accept.
Preparing for sale – A good interior and exterior clean, or even a professional detail, is certainly a good idea. If you’re selling a vehicle making sure that the tyres have enough thread and are fully inflated as well as checking the oil and fluid levels is also a good move. Providing a vehicle history check report and service history may also make you stand out from the competition.

Other things to think about before you buy

Here are a few other key things that are worth considering before you go ahead and buy.

Know who you’re dealing with

It’s worth checking in advance who it is that you are dealing with and whether they are properly licenced.

Carrying out credit activities – Anybody who wants to engage in credit activities must be licensed with ASIC (Australian Securities and Investments Commission) or be an authorised representative of someone who is licensed. If they aren’t licenced they are operating illegally.

Licensing exemptions – Some business, for example, retail stores and car yards, are currently exempt from having to hold a licence. However, the actual lender or credit provider must still be licensed. If you’re unsure of who the lender or credit provider is ask whoever you’re dealing with to tell you.

Providing important information – Anybody who carries out credit activities must give you either a credit guide, containing information such as their licence number, fees and your complaint rights or a written notice with details of how to complain about their activities.

All of the providers and finance brokers that LoanPlace.com.au deal with either hold current Australian Credit Licences or are authorised representatives of someone who holds a current license. We will only introduce you to people who comply with these regulatory requirements.

What happens if your circumstances change?

If you’re making a big purchase and taking out a financial commitment over a reasonably long period it’s a good idea to understand what you are getting into and the options available to you if your circumstances were to change unexpectedly during your finance term.

Firstly consider the insurance options available to you before you buy – None of us like paying for something that we hope that we’ll never have to use. However, if you find yourself in a situation where things are not going to plan insurance can be worth its weight in gold. For example, there are options available to cover your finance repayments if you are injured or ill and unable to work or if you are made unemployed. Check what’s available and consider your own personal circumstances and review the Product Disclosure Statement before making your decision.

Pay a deposit – Putting in a good deposit when you’re buying will help you to minimise the amount that you have to borrow. If you can maintain a position during the term of the finance contract whereby your asset is worth more than you owe to the lender you will have equity. That means in a worst case scenario you could sell the asset, pay off the loan and have some cash left over.

Make additional payments – Check that you have the flexibility to make extra payments into your finance agreement without incurring a penalty. If you have surplus cash available in the good times it can be a good idea to pay extra into your finance agreement. Not only will this reduce your finance term it will help you to build equity.

Contact your lender or credit provider if you have problems making your repayments – If you have issues meeting your repayment commitments then it is better to contact the provider in immediately and let them know what’s going on. If required you can apply to the lender or credit provider for a hardship variation.

There are places you can go for help, such as the National Financial Counselling Hotline – Tel. 1800 007 007.

Use an independent dispute resolution scheme – If you aren’t satisfied with the outcome after trying to resolve the problem with your lender or credit provider then you can take your complaint to their dispute resolution scheme. The Financial Ombudsman Service (FOS) can be contacted on Tel. 1300 780 808 and Credit Ombudsman Service Ltd (COSL) can be contacted on Tel. 1800 138 422.

Signing a Business Purpose Declaration

A Business Purpose Declaration may be required to prove to a lender that you are obtaining the finance for an asset which you will use predominantly for business purposes.

If you sign a Business Purpose Declaration you are confirming that the purpose of the credit isn’t for personal, domestic or household purposes.

Be aware that if you do sign a Business Purpose Declaration your contract will not be covered by or regulated by the National Consumer Credit Protection (NCCP) Regulations. This means that these regulations, which were designed to protect consumers who borrow money, would not apply to you. The NCCP makes it simpler for consumers to know their rights and what they can expect when arranging any form of credit. It also means that lenders cannot provide credit unless they have complied with the responsible lending provision, which means that they can’t lend to people who can’t demonstrate that they are able to meet their repayment commitments.