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Car loans - what to watch out for

It is exciting getting a new car, but you still need to be wary when it comes to finance.

So, you've found the car you want and you've made the decision to finance the purchase, but with hundreds of options in the car loan business, you need to keep your wits about you. Here are some important points to keep in mind when looking at finance options for your new car.

Rates, fees, fees, fees and payments ...

1. There are rates and there are comparitive rates. You usually pay the comparitive rate, not the rate that is advertised in the newspaper, which can be up to 5 per cent higher.

2. Establishment fees are a one-hit cost to do just that - establish your loan. Not all financiers charge this. It can be $300.

3. Service fees. These are ongoing, usually monthly, charges for the pleasure of your business. They can be comon with some financiers but others, including most credit unions, don't have them. Service fees can be 5 per cent of the monthly repayment which can add up to a significant amount over a four year loan term.

4. Exit fees. Pay off the loan early and you're smiling, and so may your financier. Paying off early can incur a penalty of up to $500. This varies between finance providers. Some charge no exit fees.

5. Try and pay off fortnightly. This reduces how the interest charge is accrued and therefore you pay less interest. That can also reduce the term of the loan.