Car loans may seem more bite-sized than your average mortgage, so borrowers sometimes forget that mismanaging these loans can end up in a collision with big debts. This is exactly what happened to hundreds of Australians who now owe BMW millions.
BMW reportedly chased over 226 Australians to court last year over a collective $18 million in unpaid car loans. In 2011, an additional 21 proceedings have been launched.
This sobering figure reminds us how important it is to know what you can handle as a borrower, and to never let large debts get the better of you. For example, one Aussie owing $190,000 in car loan repayments will be working hard for a long time before they see the end of this debt.
Driving around the debt trap
First of all, know what you can borrow on your income. If your weekly income is $1,000, giving up more than $300 of that in car loan repayments could put you under financial stress.
Then think about how likely you will be to repay that debt in full. If you’re between jobs, paying multiple debts or unsure about your financial security this year talk to an adviser about whether a large car loan is the best option for you.
Another mistake that people make is being too ambitious or slack with their repayment timeline. If you’re sure that you can repay a car loan in two years, then there’s no point dragging it out for five years. Similarly, don’t force yourself to make large repayments early on if your regular expenses open you up to the risk of missing payments.
Tricks of the trade
Some of the BMW luxury car owners are faced with losing their homes due to their debt. To avoid this, think about what you can secure to your loan that you can stand to lose in the event of bankruptcy – whether it’s your shares, property, or other cars.
Use your good months to make extra repayments and buffer against misfortunes down the track. Consider repaying your loan on a weekly basis to further reduce your interest in the long term.
Finally, every driver needs a safety net, so look at the insurance options available for your car loan. These steps could save your life down the track and make sure you won’t be parted from your assets or lifestyle if your circumstances change.
It’s not just the upper class drivers who are in danger of debt – compare the best car loans online today and give yourself every advantage to keep yourself smiling on the road.
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