Car loan
At last count there were about 400 personal-loan products on the Australian market. Personal loans, including car loans, are either variable rate - where the rate can move up or down at any time - or fixed rate, in which case the rate is anchored at the time the loan is taken out.
Such loans can also be secured or unsecured. With a secured loan, the lender has rights over an asset should the borrower stop making repayments. That's why interest rates on secured car loans tend to be a bit lower than on unsecured personal loans - because, as a last resort, the lender can repossess the car. In turn, loans for new cars tend to have lower rates than loans for used cars, because lenders consider a used car a riskier asset than a new one.
Credit unions account for all 25 of the car loans Canstar assigned five stars for "outstanding value" earlier this year. All but one of those loans had no monthly service fee and many had no application fee. The cheapest loan at the time was Community First Credit Union's Green Loan at 6.49 per cent (aimed at more environmentally friendly vehicles such as hybrids), though 7.8 per cent (Companion Credit Union) was about as good as it got for a standard car.
Young people without a mortgage are the main users of car loans, Zenas says.
He says while they're cheaper, secured car loans require more documentation - with attendant fees - than a standard personal loan. And, when interest rates are falling, you may prefer the manoeuvrability of a variable personal loan. Also, there are break costs if you pay a fixed-rate loan off early.
A private clients partner with accountants Pitcher Partners, Steve Fornasaro, says with a smaller loan it won't break the bank to pay a couple of percentage points more to get the flexibility or features you need.
Good for First-time buyers.
Pros Simple to understand, straightforward when budgeting.
Cons Interest rates range as high as 16.4 per cent.
Tip Avoid application fees (up to $250) and monthly fees (up to $10) and you'll save as much as $850 over a five-year loan.
Source; The AGE 14/01/2011
