FINDING THE DOUGH

Money might be the root of all evil but lack of it forces many people to keep driving cars that are unreliable, even potentially deadly.

At a time when more people are relying on government support than in living memory and conventional finance is hard to find, owning a reliable vehicle is more difficult but also more necessary than in a long time.

The money wasted by keeping a tired car running would be better served funding a newer one. However, accumulating enough cash to even start looking can seem an insurmountable problem.

Car loans represent a major slice of consumer finance. They allow people to afford a better vehicle sooner or even to fund their first one. Remember though that any decision to borrow money must be based on your ability to repay over the term of the loan, even if you become unemployed.

What follows is a summary of possible sources of funding for a vehicle including but not limited to the typical car loan.

Please note that this article does not constitute financial advice and does not take account of your personal circumstances. If you are in any doubt about the type of finance that best suited to you and your ability to repay, seek assistance from a qualified financial advisor.

Your Own Backyard (or back room)

It’s amazing the quantity of unnecessary clutter the average human can accumulate.

Granny’s 40-year collection of silverware might hold some sentimental value, but it won’t cart the kids to school or get you to a job site. Same goes for those boxes of accumulated books, toys, vintage LPs and other discards that can be turned into car-buying cash.

While these items (apart from the silver) might not individually be worth much, their

combined value could generate a decent deposit and help avoid the clutches of the more

 predatory car financiers.

Having a garage sale will shift some of the lower-value stuff, while better-quality items can be

 sold through local newspaper classifieds or on-line auction sites. Pinning a ‘For Sale’ list to the

community message board is another proven way to move unwanted goods.

A tight market isn’t the environment in which you would be wanting to sell things but there are still plenty of people out there who are still fully employed or with guaranteed incomes who are looking to buy. Even if you need to reduce the prices on some things, consider how much the ‘haircut’ you take now will save in future interest charges.

Family and Friends

Yes, the last people you want to hit up for money are mum, dad, friends or other relatives.

However, as an alternative to paying fees and huge interest to one of those ‘no application refused’ financiers, calling on family or friends for a helping hand is worth considering.

If borrowing privately, always register the debt in writing and give a copy of the agreement to an

independent witness. Set up an automatic payment arrangement from your bank account so

the car payment comes out every week or fortnight whenever you are paid or receive a benefit, just as it would under a commercial finance agreement.

 A parent or friend who dips into their savings or household equity to finance your vehicle will be paying extra interest or suffering a reduced return on their money so make sure their costs are covered while also repaying the principal of the loan.

Unsecured Loans

Financing a private-sale vehicle can be difficult, especially if all you have to offer as security is

the vehicle you’re buying. Having an account with a bank or other financial institution and

saving a few dollars each week will create a relationship which can help obtain a loan in time of

need.

If you’ve got a credit card, ask for an increase in the limit to fund the difference between your

deposit and the cost of the car. Providing you have managed your card properly, increases

aren’t too difficult to negotiate.

While credit cards are by no means the cheapest form of finance, money borrowed this way

gives you the benefits of being a ‘cash’ buyer. You also don’t have to go back to the bank or finance company to get approval once you find a car and that means you can negotiate harder on price.

Credit cards have no fixed term so smart borrowers will repay every cent they have spare to get the balance down. Then reduce the card limit to give your credit score a boost.

Personal loans through banks and credit unions are cheaper than a credit card and way less expensive than ‘lender of last resort’ finance.  Depending on your age, whether you’re

working and your credit history, these lenders may require someone to act as guarantor. That person will in turn become liable for the full amount owing if you default on the loan so understandably there aren’t a lot of people willing to be guarantors kicking about.

Dealer Finance

Motor dealers have a vested interest in finding finance for their buyers. More than 40 percent of

used cars sold in Australia are under some kind of finance and most dealers wouldn’t survive without access to a range of credit providers.

Some dealers, but certainly not the majority, are facilitators for high-fee financiers who make big money from funding people who have been declined by mainstream lenders.

Even if it means buying a vehicle that’s older and cheaper can than you’d like, avoid any dealer who claims to offer ‘interest free’ finance or other inducements.

If considering this type of finance, pay a little more for an independent valuation or a mechanical inspection that includes a suggested value range for that type of vehicle. If the vendor refuses to allow an independent inspection, walk away.

Vehicles sold by yards that offer questionable kinds of finance will often be in below-average mechanical and physical condition. If you find after a few months that you really can’t afford the car, its resale value is very unlikely to cover the amount owed.

Pay Day Loans

Any other method of finance is preferable to these debt traps. Interest rates on short-term loans have recently been capped but are still among the highest in existence. Then there are various fees and penalties that make this type of finance very hard to justify under any circumstances.

© Cliff Chambers 2020

This article does not constitute personal financial advice and should not be relied upon when making personal financial decisions. Advice if required should be sought from an accredited Financial Advisor or Counsellor.