The most common question we receive from our customers is “what is the best rate?”. With all of the awareness of interest rates on social media, tv and other mediums; it’s not surprising. However it isn’t as straight forward as you may think.
Have you ever seen an advertisement on tv or online disclosing an interest rate, only for it to be tagged with the terms – “conditions apply” and “to approved purchasers only”. Legally, any advertised rate must contain some form of disclaimer because it is not a one size fits all approach. It’s just click bait! And it can be very frustrating for you (as the customer) to read this. After all, how hard can it be to quote a rate. Well, it can be rather tricky – here’s why.
There are a few factors that determine the interest rate you are eligible for, and it all comes down to Lender risk:
Property owner or renter/boarder – property owners are considered lower risk to lenders. They generally get a lower interest rate than if they were renting or boarding. Boarders can be the worst hit by this requirement.
The car you buy also impacts the interest rate. New cars and those up to 2 years old attract better interest rates than older vehicles. Why? because they are considered lower risk to Lenders. Newer cars are less likely to require mechanical repair and therefore customers tend to have a better experience. On occasions customers who have purchased a car (or other asset) that breaks down or requires significant mechanical repair believe they can discontinue making the repayments on the loan. This isn’t the case – the obligation to make repayments continues. This is why it important to have the vehicle mechanically checked prior to purchase.
The booking value or loan-to-value (LTV) ratio on the vehicle will often impact the risk on the vehicle. For example, a loan with an LTV of 90% is less risk than one with 110%. The vehicle value is derived from the retail glass’s guide value. The LTV value will be affected by the deposit contributed in to the purchase, therefore customers with higher deposits are often rewarded with lower interest rates.
Previous credit issues are generally frowned up on by lenders and therefore they apply a risk loading to their interest rates.
Term of employment and residence are considered risk relevant. This is because a customer with a longer period of time in the same address and/or employment are more stable, and less likely to default.
Credit score is vitally important to lender risk profiles. The higher the score, the lower the rate.
Business or Private Use Loans have different rate profiles. Chattel Mortgages (Business Use Loans) and Consumer Loans (Private Use Loans) have different rates applied. Business use loans are generally cheaper, however because they are an unregulated loan they attract higher fees, especially if you pay the loan out early. So it is important to discuss this with us before you make any decisions.
All of these factors can determine the final choice of Lender. The lenders all have varied interest rate profiles. So as a Broker we match your profile to the most competitive lender; to find the best product and rate for you.
It is also important to note that the interest rate shouldn’t always be the main focus. Other loan features can be important too. For example, if you intend to repay your loan within 12 months, the interest rate may be less of a focus than the payout penalties that could apply if you pay your loan out early. We will guide you through this process and ensure the loan matches your requirements.
If you would like more information, contact us today.