The A to Z of arranging car finance

cars, utes

Hansy Mannil Jul 10, 2023

Arranging finance for the purchase of a car can be a complex task, with research to do, quotes to compare, questions about applications, approvals, timing and more.

Many people approach finance for their new car as an after-thought, both because the finance process can be intimidating, and because choosing, finding and driving your new car is fun, whilst arranging your finance is not. It’s very important however, because making the wrong choices about which finance you use and how you go about organising it can be both expensive and time consuming.

In this guide we’ll attempt to demystify the finance process, by taking you through the steps of doing your research, getting quotes, selecting the best finance package, lodging your application, getting an approval, settling your finance and ultimately driving away in your new car.

Do your research first

So, you want to buy a new car and need finance, but where should you start?

Start by doing some research: read the information available on websites like ours, speak with a specialist car finance broker and talk to your accountant. The important points at this stage are to find out what’s on offer, and figure out which finance structure is right for you.

What do we mean by finance structure? Well, there are a number of different ways of financing a car - including Hire Purchase, Car Leasing, Chattel Mortgage, Novated Leasing, Secured Car Loans and Personal Loans. Each of these is structured differently from a legal perspective, and each suit different situations.

Choosing the right structure is complicated and you will need expert advice to do it properly. The wrong finance structure can cost you thousands of dollars, so make sure you get the right advice from people that you trust.

At this stage you should also think about the loan term, if you require a balloon / residual value to help tailor the repayments to suit your budget and which other things are important to you (timing, service, being able to pay out your loan early without penalty, etc). You don’t need to make a final decision about these factors at this stage, but having an idea of what you want will be helpful when talking to financiers and comparing offers.

Arranging quotes

Once you know the finance product that is right for you, and have some idea of the loan term and balloon/residual value you want, the next step is to get some quotes.

There are a multitude of finance providers out there, including banks, finance companies, finance brokers and car dealers (if you’re buying your car from a dealer), so do a little bit of internet research or ask for some recommendations. Getting an online car finance quote can also be a convenient way to get some initial figures.

Once you have your shortlist, give each company a call, explain your situation and what you want, and ask them to put together some options for you. Get the quotes in writing, including the interest rate, information about retained interest & payout penalties and all fees & charges – both for your protection and so you can compare them later.

If you decide to speak to the Business Manager (finance salesperson) at the dealership where you are buying the car, don’t be pressured into signing anything on the spot. Most Business Managers are great high-pressure salespeople, and you could end up costing yourself a lot of money if you don’t take the time to properly evaluate all your options properly.

It is also convenient to talk to an experienced car finance broker – like Stratton – when organising your quotes, as they have access to a wide range of different lenders. This saves you a lot of time as it provides you with access to a range of quotes and comparisons without having to contact each finance company individually.

How to select the best quote

Once you have collected a few quotes, it’s time to decide which one is the best for you and your situation.

Again, an experienced broker can be of great assistance at this stage – both in comparing quotes for you, and in helping you select the most appropriate product and lender for your situation. However, if you do decide to go it alone there are a few important factors you need to consider:

Interest Rate

Interest rate is of obvious importance when comparing quotes. It also seems easy to compare – lower must be better, right? Unfortunately this is rarely true, because there are other costs associated with a finance package, including upfront fees, ongoing fees, “special” once-off fees, retained interest, payout penalties and more.

Of course, the interest rate must be considered, but don’t fall into the trap of using interest rate alone to compare your options. Comparing comparison rates, monthly repayments and other loan features can give a much clearer picture of what a particular finance package actually costs you – more on this later.

Fees & Charges

Finance companies charge a range of fees as part of their finance packages, and these will differ from lender to lender.

Fees you may encounter include an upfront establishment / settlement fee, ongoing account-keeping fees, “special” once-off fees (for example, to provide an account statement) and early payout fees.

All of these contribute to increasing the overall cost of your loan, and all-to-often a low interest rate can hide very hefty fees that make a finance package much more expensive then it seems.

Payout Penalties & Retained Interest

A factor of critical importance when comparing quotes is retained interest – often colloquially known as a payout penalty. Retained interest is a hidden charge levied by almost all lenders in Australia if you payout your finance early, whereby they add a portion of unpaid future interest to your payout figure. This is distinct from a payout fee, and unfortunately it can be very hard to ascertain how much interest a particular lender retains.

You can find out a lot more about retained interest and how much it can cost you by reading our article, “Retained Interest & Payout Penalties Explained”, or by using our Payout Penalty Calculator. However, at this stage the pertinent points are that retained interest can be very expensive, and only a handful of finance companies and brokers (including Stratton) can offer you finance packages with no retained interest or payout penalties.

Comparison Rates & Monthly Repayments

Low interest rates can often hide hefty fees and charges that make a finance package much more expensive then it appears. To combat this you have two tools at your disposal: comparison rates, and monthly repayments.

A comparison rate is the interest rate of a loan, taking into account the cost of any fixed upfront fees, ongoing fees and termination fees. Legally, comparison rates must be quoted for all consumer car finance packages, but this requirement does not extend to business-related finance packages. Still, if you are considering a commercial car finance option, you can calculate your own indicative comparison rates by using a Comparison Rate Calculator, which will help you to compare the quotes you have been given.

The second tool available to help you make your comparisons is simple: how much does each quote cost you per month? While this is a fairly simplistic way of comparing the monetary cost of your finance quotes, as it does not include the often-significant impact of upfront fees, termination fees or retained interest and payout penalties, it is better than comparing the quoted interest rate alone.

Flexibility

Flexibility is fairly clear-cut: will the lender give you what you want?

Some lenders are more conservative with residual values and approval guidelines than others, so if you are aiming for a large residual or have a less-than-perfect credit history you may find that your choices are more limited, and not all of your quotes deliver the result that you’d hoped for. There’s not a lot you can do about this yourself – other than to try to find a lender who can deliver the outcome you want - but it is important to remember that this is another area where a broker can be of great assistance. Not only do experienced brokers know how to best present your application to a lender so that it is seen in a favourable light, they can also help to negotiate a slightly higher residual value than is normally possible (if this is your goal).

Service & Advice

This final point isn't directly related to cost – at least not in a dollars sense - but it is important: what is the company behind each quote like? Are they experienced and educated about car finance, and able to provide you with any advice you need? Do they provide efficient and one-on-one customer service (including ongoing service), or do you have to wait 15 minutes on hold and talk to a different person every time you call them? How fast can they have you approved, and then driving away in your new car? Are their customers happy? Do you trust them?

These are important factors, as anyone who has had to deal with a frustrating call-centre or shady dealership can attest. Stratton can proudly say that our service is considered to be industry-leading, all of our staff have years of experience and are experts at what they do, and we work to find the best deal for our customers.

Submitting your application

By now you have hopefully decided which quote is best for you, and are ready to proceed to an application. You don’t necessarily need to have bought a car or even found one yet as most finance companies can organise you a pre-approval. A pre-approval confirms what you can afford, gives you the certainty to shop with confidence, and puts you in a better negotiating position when you do find the right car.

So, what is involved in submitting an application?

Most reputable finance companies and brokers will give you the convenient option of submitting a car finance application online or alternatively over the phone or via fax. The application process will ask for some information about you and your business (if applicable), including your personal and contact details, employment and financial situation, your assets & liabilities, the car you wish to buy (if known) and how much you want to borrow. You will also need to provide a few documents to the finance company along with your application. These vary from lender to lender, but generally include a privacy consent form, proof of income (payslips or a tax return), proof of identity (drivers licence) and proof of property ownership (rates notice) if applicable.

Getting your finance approval

Once your application is submitted, the lender will assess the information you have provided in order to determine whether they will approve your finance application. Generally, they will look at your capacity to repay the loan, the value of the vehicle, how much asset backing you have, and, if you have had previous finance, how well that loan was conducted.

The lender will compare these factors against their internal guidelines, and while each financier has different approval timeframes, most good finance companies and brokers can provide a response within a couple of hours, and sometimes even instantly.

Having an experienced finance broker working for you can be invaluable at this stage, as they know how to best present your application to the lender. Additionally, larger finance brokers like Stratton have a “direct line” to the decision makers at finance companies, so they can explain your situation much more effectively than a simple application form. An experienced broker also knows which lender is most appropriate for each client, as different lenders have different guidelines and some are more conservative than others.

The final steps

With your approval in place you can go out and shop for the right car with confidence – or proceed straight to settlement if you have already bought one.

Once you have found the car, negotiated a price, and signed the contract of sale, the next step in the finance process is to settle the finance. This process refers to arranging the final few pieces of information needed by the finance company, signing your finance documents, the dealer or seller being paid, and you driving away in your new car.

To begin this process, the finance company will need a few final pieces of information. If you are purchasing from a dealership, normally all that is required is a copy of the tax invoice for the vehicle. Private sales can be a bit more complicated, and may require you to arrange a vehicle inspection report and a few other pieces of documentation.

Once the finance company has received this information, they will prepare your finance documents. These documents will contain details about the vehicle, the term of the loan and the repayments. Some finance companies and brokers will post these documents to you, which can significantly slow the settlement process, but others (including Stratton) can send them via e-mail so that you receive them instantly.

After you receive your finance documents you will need to sign them, have them witnessed, and then return them to the finance company. From there, the final thing that you need to do is provide an Insurance Certificate of Currency which confirms that the car is insured.

Once your insurance and loan documents are received by the finance company, your work is all done. The financier creates the loan and pays the dealer or the seller. After they have received the funds, everything is complete and you can go and pickup your new car!

Unfortunately, the settlement process can often be slow and complicated, and this is another area where a broker can save you a lot of time and hassle. They will co-ordinate the whole process and do most of the running around for you. In fact, a good broker like Stratton can normally have your finance settled and you driving away within 24 hours of you agreeing to purchase a car!

How to do it the easy way

So there you have it – the A to Z of arranging car finance.

Whilst arranging car finance can be involved, complex and often confusing, we hope that this guide had shed some light on how the process works and how to go about it. However, we must conclude with one important point: there’s no substitute for using an experienced broker like stratton.

Every month, Stratton makes the finance process easy and hassle-free for hundreds of clients, and we save them money to boot.

We have access to a huge range of finance companies - including some not available to the general public or through other brokers – and wholesale interest rates. Our staff are all highly experienced and knowledgeable, and we provide industry-leading, personal service.

If you’d like to know more we’d be delighted to hear from you, call us on 1300 STRATTON (1300 787 288). You can also fast-track the finance process by getting an instant car finance quote, and you can find out more about car finance for businesses or individuals from the finance options section of our website.