Question 3

Question 3: Throughout years 11 and 12 I worked on a casual basis to save towards my goal of purchasing a car. I have saved half the money required to pruchase the car but will need to obtain a loan from the remainder (approx $10,000). What type of loan would be suitable and what level of monthly repayments would I be looking at if I wanted to repay the amount over 5 years. What is the current interest rate? How would I go about obtaining the finance, or in other words, what steps do I need to take to obtain the loan?

A. In regards to car loans, you could take out a secured car loand or an unsecured car loan. What this means is that with a secured car loan, the interest is fixed so you know what your repayments are. Contrary to this, an unsecured car loan means that you have to option of making extra repayments at any time. Currently at RACV, the loan interest rate is at 6.99% for new car loans. The RACV car loan is an unsecured car loan which allows you to make extra repayments at any time. By paying more than the monthly repayments, this would reduce the time taken to pay off the loan for your car. On top of the interest charge, you would be expected to pay $198 per month.

However, if you were to pay extra ontop of the monthly repayments this will reduce the interest you would have to pay therefore, it is recommedned to look for a car loan that is unsecured with low interest rates.

RACV car loan: http://www.racv.com.au/wps/wcm/connect/racv/Internet/Primary/finance/loans/car+loans

In order to obtain a loan you should develop a personal balance sheet which determines whether you have the capcity to repay a loan. After this, a personal balance sheet should be developed which shows your net worth. Next, you would offer a collateral for the car loan.

(Source: Accounting Concepts and Applications 4th edition, Phillipa Greig, Joan Mackay, Stacey Beaumont, Rosette Sanger, 2008)