The number of Australians failing to keep up with their car loans will continue to rise, with those living in mining centres most likely to fall behind on their payments.
A November report by Moody’s Investor Services found the average 30-day or more delinquency rate increased 1.18% in the year to September 30.
“We expect delinquencies and defaults to increase moderately through the remainder of 2016 and in 2017, in particular in regions exposed to the slowdown in the mining sector,” says Alena Chen, Moody’s vice-president and senior analyst.
New-car sales in Western Australia have declined by more than 10% in the past two years.
Roy Morgan research released last week showed the number of Australians intending to buy a new car within the next 12 months has fallen since the start of the year.
Scott Malcolm, a financial adviser and director of the online platform Money Mechanics, says that while a car purchase is exciting, buyers should take steps to protect their finances.
“There is plenty of jargon around when it comes to the finance options with cars. It is important that you understand the terms of the contract you are getting yourself into. Is it a personal loan, hire purchase, or lease agreement?”
Malcolm also encourages buyers to shop around for the best loan, negotiate on prices and
consider the tax implications of the purchase.
Scott Malcolm’s tips to avoid getting in over your head with car loans
- Understand your Cash Flow to ensure you can afford the repayments over time. Consider the option of salary packaging which could provide tax benefits and balance out the running costs overtime.
- Download the ‘Money Smart Cars App’ put together by ASIC, with tips and traps when buying a car.
- Take your time with the process. Don’t get caught up in the excitement of the sales experience.
- Shop around for the right loan and get the best deal on interest rates. Compare the ‘comparison rate’ against other providers, and remember you can negotiate!
- Understand the type of loan you are getting into, including fees and balloon payments at the end of the term.
- Delay the purchase to pay cash or a larger deposit to borrow less.
- Seek out further advice and start your journey to being free around your money and creating wealth with understanding.
Scott Malcolm is a Platinum Adviser on Adviser Ratings and the Director of Money Mechanics, which is a fee for service financial advice firm who partner with clients in Melbourne, Canberra and Sydney to achieve their life and wealth outcomes.
This article was first published in Money Magazine on Dec 7th, written by Sharyn McCowen, with contributing adviser Scott Malcolm