Picking Out A Motorbike (Part 2)

Thursday, 03 May 2012 08:22

So you’ve decided that a motorbike is a good option for you, either because you want the fun of cruising the highways or the convenience of a form of transport for one that uses less fuel than a car does.  And you’ve checked out what you need in the way of licences.  You’re ready to organise a motorbike loan, you’ve saved the deposit and you’re ready to start shopping.

You probably already know that not all cars are created equal and the same goes for motorbikes.  If you run your eyes over what’s on offer at your local car dealers, you’ll see a number of different styles of vehicle with four wheels: hatchbacks, sedans/saloons, stationwagons/estates, sports cars, coupés, convertibles, four-wheel-drives, utes, SUVs... the list of body styles and specs seems almost endless.  While motorbikes don’t come in such a wide range of styles, there are different types out there.  If you’re going to all the effort of taking out a loan to purchase a motorbike, it’s wise to do your homework and choose the right bike for you.

So what’s out there?

• Scooters: Scooters are the smaller type of bike and are suitable for people on a provisional licence.  They’re great for city running and if you just want a nice cheap way to get about, a scooter may be all the bike you need.  Think the classic Nifty 50 (Honda 50) and the little Italian Vespa types.  You can also pick up electric-powered scooters that reduce your petrol bill to nil – although they do bump up your electricity bill.  Scooters aren’t built for speed but for compactness, but even so, a good scooter might make a good addition to a commercial fleet if you want an in-house courier to negotiate heavy traffic (scooters can glide along the side of queues) to get documents, samples and lab results across town quickly.
• Cruisers:  This is the bike you need if you’re planning on going on long journeys and road trips.  Cruisers are built for comfort and tend to be bigger bikes.  They also tend to have a bit more room for a pillion passenger and a variety of saddlebags for carrying the gear needed for overnight trips.  Harley-Davidson is the iconic type of cruiser, but BMW also makes some very comfortable and reliable cruisers – police forces in various parts of the world have used BMW bikes for their motorbike fleets.  Needless to say, you need a full licence to ride one of these, as they tend to have bigger motors.
• Dirt bikes:  These are designed for off-road use in rough conditions and usually have juicy suspension and heavy studding on the tyres.  They’re not the best choice for on-road use, but if you live in one of the remoter parts of Australia and most of your roads are gravel or you do a lot of off-road running, a dirt bike might be the best option for you.  Some dirt bikes are designed purely for off-road use and may not be road legal, so ask the dealer the right questions if you have your eyes on one of these.
• Racing machines:  Definitely not for the learner rider or the inexperienced, these tend to be built for speed and power – Kawasaki, for example, makes some very powerful machines indeed.  These tend to be heavy bikes with streamlined design.  Don’t forget to buy all the safety gear you can to be on the safe side – you might need to take out a larger loan than you would have otherwise to do this.
• Classic bikes:  Triumphs, older Hondas, Harley-Davidsons and other bikes from the 1970s and earlier.  These tend to be bought for fun and for sentimental reasons, but they are surprisingly practical and reliable.  They tend to have bigger engines (except in the case of very old models that date back to the Second World War) and might not be the best choice for learner riders. 

Expect to have complete strangers come up to you and talk to you about your bike if you have a cruiser or a classic, especially if that stranger also owns a bike.  This could be another reason for buying a motorbike – it’s a great way to meet people with a common interest.

Picking Out A Motorbike (Part One)

Tuesday, 17 April 2012 15:54

We don’t just deal with car loans here at Fincar.  We also process plenty of applications for motorbikes as well.  Whether you’re getting two wheels for business or for pleasure, a motorbike has plenty to offer in the way of fun and for fuel-efficiency.  But what do you need to look out for if you’re buying your first motorbike?

The first thing you have to make sure that you have before you apply for a motorbike loan is a motorbike licence – duh!  You’re going to look pretty silly if you go down to the dealers, loan all approved and ready to go, only to find out that you can’t drive the thing home.  Alert readers might have spotted the Catch-22 situation here: you need a motorbike to pass the practical licence test but you can’t ride the bike out of the dealer’s yard without a licence.  No worries.  You can sit a theoretical test and get a learner’s permit, as long as you’re over the right age (which, presumably, you are if you are considering taking out a loan and reading this – although some younger readers and potential riders might think about getting loans from the First National Bank Of Mum And Dad).  The age does vary from state to state – you have to be 16 to get your learner’s permit in South Australia but you have to be 17 to get the same bit of paper in Western Australia – check the regulations for where you live.  Don’t forget to attach your L-plate before you ride away, and if you’ve never ridden before, get someone to show you how to ride (another duh! statement).  Also don’t forget to include the price of your helmet and other safety gear when you apply for that loan.

Your licence will determine the sort of bike you have. A person holding a learner’s permit (and those who’ve been riding for less than 12 months) can only ride motorbikes with under 250cc engine capacity – but there are a few exceptions, as some motorbikes are “pocket rockets” that can twist a huge amount of power out of a small engine, and these are on the “No Way” list for those with an R-Date licence (also known as an R-E licence).  Later on, you can get the bigger bike with 250+ cc.  Often, we see people applying for motorbike loans when the time comes for the “big bike”, as these are often more expensive (it’s easy to pick up second-hand <250cc bikes at a reasonable price – people who have bought the new big bike often sell the old one, or else they try to sell the small bike so they can use the money as a deposit on the new one).

Mopeds are a different kettle of fish altogether.  Mopeds have an engine capacity of under 50cc and can’t work up any speed over 60 km/h.  Some mopeds can best be described as a cross between a regular pushbike and a motorbike.  They’re not as common as regular motorbikes, and we hardly see anyone coming to us so they can take out a loan for a moped!

But what do you choose when you pick the big one?  Are all bikes created equal or are there different sorts for different purposes, similar to what happens with cars.  And do you have to go to a larger bike at all?  This is a bit more complex and will take another post to address properly.

Penny-Pinching Petrol Tips

Wednesday, 28 March 2012 11:26

The golden rule when it comes to taking out a car loan, no matter how much you shop around (or get us to shop around) is that the bigger a deposit you can scrape together and the quicker you can pay the loan off, the less interest you’ll pay and the less you’ll have to pay in total.  Now, as every frugal person knows – and that includes a number of self-made millionaires – it’s the little things that count and if you can cut costs back, even if only by a little bit, you’ll end up saving a lot in the long run.  To quote an old proverb “Many a little makes a mickle,” where “mickle” is an old dialect word meaning “lot”.

Petrol (or whatever powers your car) is one place that you can cut down on your costs if you’re canny.  While you’re in the market for a new car and a car loan, take some time to check out the fuel efficiency (either in miles per gallon or in litres per 100 km) of the vehicle you’re about to purchase.  Get an efficient vehicle after owning and driving a thirstier model and you’ll be amazed at how your petrol bill goes down. But no matter what you ultimately end up choosing – and there are times when you will need a big, powerful vehicle that can tow stuff rather than a little city hatchback – how you drive it also makes a difference.

The following tips are proven to cut down on your petrol costs.

1              Drive less aggressively.  If you keep your speed to the legal limit and don’t alternate between flooring it and slamming on the brakes, you will use less fuel.  And, as an added bonus, you’ll save yourself a few costs when it comes to repairs and maintenance AND you’ll be safer as you drive.  This fact’s been proven in many studies for vehicles big and small.

2              Take off the roof rack.  If you can take it off some of the time, do so.  Anything that increased the wind resistance of your vehicle makes it less aerodynamic and less fuel-efficient.  A bloke I know who does gardening professionally managed to reduce his petrol bill by 20% simply by lowering the height of his work trailer so that it didn’t stick up over the top of his work ute. 

3              Select the right gear for the job.  Trucks these days have a “green band” in their rev counter that lets the driver know when the engine is sitting at its most fuel-efficient.  Not the place where it reaches maximum power – the place where it’s most efficient.  It’s a pity that cars don’t have this, although some are starting to in the push for more eco-friendly cars.  However, all of us can learn by using our ears when our car engine is working too hard or slowing down and heading towards stall speed.

4              Combine trips.  Instead of taking one trip to get the kids to sports, then back home, then another trip to the shops and then back home again and then another trip to pick the kids back up again (and so on), plan ahead and combine trips.

5              Look at alternatives.  This doesn’t always mean public transport, especially if you’ve got a family to transport.  However, for shorter journeys (a couple of kilometres or less), take a bike or walk, as these only burn calories and you can save on gym membership while you’re at it.

More Car Dealer Ads Decoded

Tuesday, 13 March 2012 09:05

In our last post, we had a look at some of the headlines that hit you in the face when you have a look at a car ad – and some of the fine print that usually turns up at the bottom of the page.  Most of these headlines relate to car finance and the various conditions of the loan, but a few don’t.  Here’s another selection, again taken more or less at random from the automotive section of an old newspaper – with identifying information about makes, models and dealers removed to protect the innocent and the guilty.

• “Brand new [Make & Model] from $XXXXXX.” Notice that little “from”.  This means that the price could be more than this.  In fact, it probably will be more than this if you want anything more than the basic bog-standard variant of this new car.
• “Get $XXX worth of accessories free”.  Sounds like an attractive deal, but the chances are that these accessories will include rather basic things like soft cloths for cleaning the windscreen, a keyring with the brand name (or the name of the dealer) and a few other little bits and pieces like coffee cups, cleaning products, mats and possibly seat covers if you’re lucky.  A nice deal, but don’t let this sway you away from a lower price from another dealer – these little dinky giveaways probably aren’t worth it.
• “Now only...” Like all ads of this type, there’s a chance that the “full” price isn’t really the full price and you’re being offered a discount just to make you think that you’re saving money.  Shop around and look at what other dealers offer for similar vehicles and you’ll get an idea about whether you are actually getting a discount or not.
• “The new [make and model] – new look and new features.” This means that the manufacturers have upgraded the vehicle in question.  The fine print usually clarifies what the changes are.  It’s up to you as to whether you like the new features or whether you want to stick with the older type that has just been superseded – which might be a good idea if you’re on a tight budget and the new features are things like bigger wheels or a different shape for the headlights.  But new models usually have a few more tweaks than that!
• “This month only!” or its close cousin “This week only!” This is a very common advertising technique, making you think that you’ll miss out on the deal of a lifetime if you don’t sign on the dotted line now.  It is a gimmick, and there will be another “get it now before it’s too late” deal in the yard next week or next month.  Never feel rushed or pressured into making a decision about a vehicle – it’s your money (OK, you’ve borrowed most of it but you will have to pay it back) and your car.
• “No deposit”.  This means you don’t need a deposit to get the car but you will probably be stung with higher interest charges or higher weekly/monthly repayments.  Shop around for loans in this case (or get us to do it for you) to find something easier to manage unless you’re in urgent need of a set of wheels (see above).

Taking Care Of The Pennies

Thursday, 09 February 2012 15:01

The old proverb says that if you take care of the pence, the pounds will take care of themselves.  When you apply for a vehicle loan, there are two things that will help your chances of getting your loan approved.  The first of these is to collect a decent-sized deposit together for the vehicle of your choice.  After all, the less you borrow, the less you have to repay and the less interest you’ll be facing.  The second thing to do is to pay off as many outstanding loans/debts as you possibly can to improve your credit history – things like credit card debts are a good place to start.

Amassing a deposit and paying off outstanding debts aren’t things you can do quickly.  It will take discipline and it will take time.  But, as the old proverb says, if you take care of the pennies, the pounds will take care of themselves.  In other words, if you make a few small cuts here and there, the few dollars saved here and there will all add up into a bigger amount.  It’s all about budgeting.  Take a creative approach to it and it won’t seem like such a chore.

Just to get your creative juices flowing budgeting-wise, here’s a few penny-saving tips to get you started:

*     Eat out less often.  Just stop and look at what’s in that restaurant or café meal.  Do you really think it costs as much to make as you’re paying for it?  Is having someone cook and do the dishes for you really worth that much?  Home-cooked meals are usually much cheaper than restaurant meals.  It’s not that you can never go to a restaurant or eat out; just keep it for special occasions.

*     Try to mend it rather than throwing it away.  Sure, if it ain’t broke, don’t fix it.  But if it is broke, then fix it!  This is especially the case for clothes: you can easily extend their life by sewing on a button, taking up a hem or even slapping on a patch. 

*    Rethink “retail therapy”.  It might feel good to find a real bargain and bag it, but if you didn’t really need it, you will end up feeling worse in the long run.  No matter how much you saved.  If you didn’t buy it, you’d save 100%.  Look for another hobby – there are plenty of things to do that have the same amount of challenge but don’t have the painful price tag.

*     Walk, take the bike or carpool to cut down on your fuel bill.  The transport experts say that trips less than 2km can be walked, while those less than 5km can be biked.  And you won’t just save a few dollars by walking or biking, you’ll help do your bit towards cutting down on carbon emissions and pollution, thus saving the planet as well as saving pennies.

*     Try doing it yourself.  There are a lot of things that we often pay professionals to do – cleaning, car maintenance, lawn mowing, etc. – that we could do ourselves.  Sure, there are times that you need a bit of a helping hand, but the more you can do yourself, the more you’ll save.

The important thing when budgeting so you can save for a deposit is to just get started and to stick with it.  Once you start making the changes and seeing the difference, it gets easier to stick with your plan.

Two Wheels – Why Not?

Thursday, 26 January 2012 07:14

Now that January is nearly over and most of us have had our summer holidays and are getting our work heads back on again, it might be time to review your transport and travel options for 2012.  But instead of getting out a loan to buy a car, why not get out a loan to buy a motorbike?

Most people think about motorbikes as being more for fun than for transport – it’s the whole biker thing.  But not every motorbike is a Harley Davidson and the original purpose of a motorbike was to get from one place to another quickly and easily.  And this original purpose hasn’t changed.  In these days of high petrol prices, a motorbike might be ideal as your only form of transport or as a second “car”.

Of course, before you apply for a motorbike loan, you need to make sure of a few things.  First of all, does a motorbike fit your circumstances?  For obvious reasons, if you have a family or if you need to take a lot of gear around the place, a motorbike won’t be the vehicle for you.  However, if you just need a set of wheels to take you to work or to pick up a few groceries (and we’re talking a couple of loaves of bread and a bottle of milk here, not a 10-kg sack of potatoes), a motorbike could well do the trick.  And, of course, if you like the idea of hitting the road for the weekend, a motorbike has a level of fun that a car can’t offer.

As well as the fun factor, motorbikes have a lot to offer, whether you are considering a larger cruiser or a nippy little motor scooter.  They’re usually more frugal on fuel, which is certainly a good thing if you’re in the process of applying for a loan and setting a budget.  It’s also good for the environment.  They are usually easier to find a park for, as they’re smaller.  Some institutions have space for motorbike parking that enables about four bikes to be parked in the space that would otherwise be taken up by a car – and these motorbike parks often don’t incur charges for parking.  In some places, motorbikes are permitted to go places that are usually reserved for buses or cars with more than one person, usually because they’re smaller and more nimble than most cars, and they don’t contribute as much to traffic congestion. 

Businesses could also do well to consider motorbikes for their company fleet, especially if your business involves delivering documents and other small items where speed counts.  The motorbike courier is part of the modern business world and offers good value for money because of the fuel economy.  There’s no reason why a motorbike couldn’t be added to your company fleet, either as an asset or as part of a novated lease agreement.

Another thing to consider when you apply for a motorbike loan is the licence.  You do need a separate motorbike licence to ride a motorbike, even though the road rules are the same whether you have four wheels or two.  Motorbike riding involves a different set of skills.  As with a car, you have to have a provisional licence for a time, and you have to comply with these conditions, which include the engine size.  Check the rules for your State/Territory before you start choosing your motorbike and thinking about loans.

And you also need to have the right safety equipment.  This means, at minimum, a helmet, but can (and probably should) include a jacket and trousers with protective padding, and possibly proper motorbike boots.  Good ones aren’t cheap, so you might like to talk to us about whether you are able to include the price of purchasing safety equipment in the amount you borrow, along with the motorbike loan proper.

Managing The Budget Over Christmas

Thursday, 08 December 2011 07:42

Christmas is a-coming, and it’s one of those things that you have to factor in when you’re working with a budget... and you should be working with a budget if you are considering taking out a loan for a car, bike or boat (yes, even if you are buying said car, boat or bike as a Christmas present!). 

Often, when people first calculate a budget to see what sort of weekly payments can be managed for your loan repayment, they can overlook events like Christmas and birthdays, which do require a little extra expenditure.  And then that time of year comes around and the pressure can start coming on.  It can be tempting to overspend and possibly max out your credit cards in order to have the “perfect” Christmas.

However, if you cut through the hype and are smart, then you can avoid blowing your budget over this time of year and facing the choice between defaulting on a loan repayment – with all the nasty hassle that comes with this – or eating baked beans for a fortnight.  (If it gets to that level, choose the baked beans.  They’re good for you as well as being ultra-cheap, and it’s easier to repair the social damage caused by blowing off than the credit damage caused by blowing your credit).

First of all, remember that Christmas doesn’t have to be “perfect” as defined by advertisers and movies.  You don’t need a huge turkey or ham for Christmas dinner, plus all the heavy food of a Northern Hemisphere Christmas.  In Australia, we’re lucky enough to be able to have Christmas in the veggie growing season, so make the most of cheap seasonal veggies or even home grown veggies and built your Christmas dinner around that, with the meat being a sideshow.

And presents don’t have to be the biggest, best, flashest and most fashionable.  It’s a cliché, but it really is the thought that counts.  Try home-made treats and gifts if you’re good with your hands (sweets, jam, biscuits, cake, photo frames, etc...) or vouchers offering your services (washing cars, mowing lawns, babysitting, weeding, cleaning) that can be redeemed throughout the year.  Or set a maximum limit and see what you can find for under a certain price – it’s amazing what you can find if you use your imagination.

Other tips to help you fit Christmas into your budget are:

• Join a Christmas hamper scheme or voucher scheme through your local supermarket – this does trim down the food budget.
• Buy presents bit by bit through the year rather than in one big hit.  This spreads the cost out, allowing you to fit present shopping around your repayments.  October and November can be good times to start. (Oops – bit late for that one now!)
• Buy presents for families as a group rather than individuals.  This is especially good if you have masses of relatives.
• Make your own Christmas cards – after all, you can get enough pictures of Christmas-related stuff on the catalogues that pour through the letterbox to provide plenty of collage material.
• Make a pact with the members of your family that the presents will be bought in the New Year/Boxing Day sales when all the excess stock in shops gets sold off cheap.  Don’t go mad, though – again, set a maximum limit and stick to it.  Use cash and leave the credit card at home if you’re likely to give into temptation.

How To Avoid Shylock

Wednesday, 09 November 2011 08:32

Shylock, for those of you who aren’t familiar with Shakespeare’s play The Merchant of Venice, was a moneylender who charges one of the main characters (Antonio, the merchant of the title) in the drama one of the most outrageous penalties for defaulting on a loan: the terms of the loan – which was voluntarily signed and agreed to by Antonio – allowed Shylock to cut a pound of flesh off Antonio... without anaesthetics, which hadn’t been invented when Shakespeare was writing, unless you count very strong alcohol or opium.  And you can guess what happens:  Antonio defaults on the loan when he gets the news that one of his trading ships has been wrecked at sea, and Shylock hauls him into court with a knife ready to do the business, and it takes some very cunning legal work by Portia, the heroine of the play who disguises herself as a man so she can act as a lawyer, to get Antonio off the hook.

Shylock was the Renaissance version of a loan-shark: someone who charges a very high rate of interest so people with bad credit ratings can take out a loan.  Loan sharks – although you won’t hear them advertising themselves this way – are now more common and more acceptable to society than they used to be (only just).  In Shakespeare’s day and before that, the practice of charging very high interest rates was known as “usury” and it was considered to be among the most atrocious of moral crimes.  Dante, who wrote before Shakespeare, in his classic Inferno, put usurers (we’d call them loan sharks) in the seventh circle of Hell at the same moral level as murderers and perverts. 

And if you’ve ever talked to anyone who has taken out a loan with a loan shark, you’ll understand why society in days gone by cast them as villains.  Some people who have failed to read the fine print and/or have felt so desperate that they’ve taken out a loan from one of these unscrupulous lenders would agree completely – and are likely to consider hacking off half a kilo of muscle to be a better situation than watching their family suffer in an attempt to pay the loan off.

You should always be suspicious about people or companies who offer loans on very easy terms.  It is highly likely that there will be exorbitant hidden charges and/or penalties.  These people are often considered by people who haven’t got a stellar credit history.  How can you avoid Shylocks but still get the money you need to buy a set of wheels (so you can get to your job so you can earn the money to pay off the loan and still have something left over to live on)?  Is there a way?

The first thing to do is to look at your credit history carefully.  Sometimes, the printouts can be wrong or out of date.  A debt may be in dispute or you may have already paid it off, and this isn’t shown on the “bit of paper”.  If you can sort this out and clarify what’s going on, then you may be able to clear your name on the credit front.

The next thing you can try doing if you do have outstanding debts or unpaid bills that are damaging your credit rating is to do what you can to pay them off.  This may mean that you have to trim your lifestyle back a bit – cut that credit card up if you find that you can’t help yourself running up big bills with it! 

If the problem is well and truly in the past – perhaps the bad rating is a legacy of being young and stupid many years ago – then having the paperwork, such as bank statements and budgets can be used to show lenders that you have learned how to manage your money properly and you are unlikely to default on a loan again.  Another possibility is to save up and have a large deposit handy, which not only means that you’re borrowing less but also shows the lender that you’re able to save money.

And, most obvious of all, try applying to a different lender.  If you’ve always gone to the same lending organisation and they know that you have a tendency to get yourself into problems, then a new lender might be more favourable towards you, especially if you take some of the other steps listed above.  Talk to us and we’ll help you find a new lender that suits your situation – and we’ll help you with the fine print so you don’t end up paying a pound of flesh. 

More borrowing and lending terms for absolute beginners

Wednesday, 26 October 2011 06:57

In the last post, we introduced beginners to the world of car finance to a few of the terms that get used when you start looking for a loan to buy your car.  After all, those who are looking for their first car are quite likely to need a loan to purchase that car – usually so they can go to work to earn the money that will be needed to pay off the car (and hopefully have a bit left over to pay for other expenses).  Here’s a few more borrowing and lending terms explained for those new to the process (Those who know how it works but need a loan to get a new car because their old one has blown up can skip this post and get on with the job of applying for a loan and finding a new car.)

Loan Calculator:  These are handy little gadgets provided by many lending companies to help you work out whether you can pay off the loan comfortably or not.  It’s a sort of budgeting tool, and it takes the number-crunching burden off your back – just in case you can’t remember how compound interest works even though you know you had to calculate it in class, or if you’ve handed that scientific calculator you used for doing these sums to your little sister.  With a loan calculator, you can work out what the repayments will be like (and therefore whether you can manage them) with various interest rates, terms (see below for a definition of this) and amounts to be borrowed.  You can get started by trying out our loan calculator here. 

Deposit:  This is the amount you pay up front towards the cost of the car.  If you read the last post about interest rates, you probably have realised that the more you can pay towards the car outright at the start, the better, as this will mean that you pay less interest, because you won’t have to borrow as much.  The exact amount that you need for a deposit varies.  Some lending companies will approve your loan with no deposit or only a tiny deposit, while other companies prefer you to pay a bit more up front.  Naturally, this will affect the interest rates they will offer you, so be aware. 

Term:  Term refers to how long you will be paying off the loan and the interest – the amount of time it will take until it’s all settled and the car is 100% yours.  The term is usually something that can be negotiated with the finance company, but the general rule of thumb is the longer the term, the lower the monthly repayments.  However, with a longer term, you will also pay more interest overall, so it’s a juggling act.  A short term, less interest and a large monthly repayment?  Or a longer term, more interest and more manageable monthly repayments?  It will really depend on your circumstances.  Also be aware that most car finance companies won’t accept terms longer than ten years, given the way that cars deteriorate and lose their value over time.

Repayments:  This is the amount that you will be forking out every month or every fortnight.  How often you want to make the repayments is something you will have to negotiate with the finance company, but most companies are usually OK with either monthly or fortnightly repayments.  You could try doing weekly repayments, but this will depend on your budget and how you get paid.  Regarding repayments, one thing that it pays to ask when you’re applying for the loan is whether you can make additional payments on top of the regular repayment amount so you can pay the loan off sooner, and whether there’s any fee for early repayments.

If you have any other questions about loans and car finance, don’t hesitate to ask us.  It’s important that you understand what you’re letting yourself in for when you take out a loan, so don’t feel like a twit if you ask questions.  That’s one of the things we’re here for.

Borrowing and lending terms for absolute beginners

Tuesday, 04 October 2011 06:15

Some of the people who use our services to find a good car loan aren’t old hands at the game of borrowing and lending.  For many people, leaving school and getting a job is often what triggers the need for a car – you need to get to work, don’t you, especially if that job is in a place or time that just doesn’t work for the other El Cheapo options such as walking, bussing, carpooling or biking.  And unless you can get a bit of dough off Mum and Dad, you’re probably going to have to borrow some money so you can buy a car (or a motorbike – another worthy option that’s a bit more frugal on petrol and is a good way to get about for those who don’t have to cart a family around) so you can get to work to earn some money – which you will need for paying back what you borrowed to get the vehicle.

However, if you’re new to the world of borrowing and loans, some of the terms might be a bit unfamiliar.  This glossary might help you start off and might also help you avoid a few traps for the unwary beginner.

Principal: The principal is the amount that you’re borrowing. This is usually the price of the car, but it pays to ask a few questions just in case there are a few extra charges here and there – often, there’s an administration or application fee associated with applying for the loan (the employees of lending companies have to eat...).

Compound interest: Compound interest is not just something you have to calculate in maths class.  In case you were asleep during that class and just went through the motions, compound interest works like this.  Just say that you borrow $1000 at an interest rate of 10% per annum (per annum = per year).  The interest calculated the first time round will be $100, which is 10% of $1000.  The next time that the interest is calculated, it will be 10% of ($1000 + $100 = $1100), which is $110.  This assumes, of course, that you haven’t made any repayments.  Generally when the interest at Time B is calculated, it will be 10% of principal + interest calculated at Time A – any repayments.  It doesn’t take a maths whizz to work out that the amount you have to pay back keeps growing and growing, so the more repayments you make and the quicker you pay back your loan, the less you will pay in the long run.

Bailiff: This is something you want to avoid.  If you don’t manage to make your repayments, the inevitable will happen.  Remember how annoyed you got when someone borrowed your favourite CD but never gave it back?  Well, this is how the loan companies get when you don’t pay them back the money you borrowed to buy that car.  And they will send someone to get that vehicle off you, as it was paid for with their money, after all.  This person is the bailiff.  The car will probably be sold by them and this money will go towards what you owe them.  You still might have to keep making payments, too, and your credit history (like a report card on what you’re like when it comes to paying back loans) will have a black mark against it, meaning it will be harder for you to borrow money a second time again.  DON’T GO THERE!  (If you have had problems in the past, don’t despair and feel like you’re condemned to riding the bus for the rest of your life – talk to us, as we might be able to find something that will work for you.)

Of course, these are just a few of the terms that you need to know when you’re taking out a loan for a vehicle of any description.  More in the next post!