Chances are, you started counting down the moments until you could own a car as soon as you got your learner plates. Buying your first car is exciting, but it can also be a little complicated, especially if you’re a student who doesn’t have a credit history just yet.
But with the experts on your side, it can be done! We rounded up top tips for budgeting for a car and scoring a first-time car loan.
#1 Create a budget
When you’re in the market for a new car, the first step is figuring out whether you can buy it outright or if you’ll need to take out a car loan for students. Most lenders require you to put down at least 20% of the car’s purchase price, and pay the rest off in regular instalments.
So, before you take your dream car for a test drive, save up the money for the deposit and figure out how much you can comfortably spend on repayments for your new ride. That dollar figure will be different for everyone, but it’s important to be realistic and honest with yourself. To do the math, look at your savings, income and living expenses, and think about the amount you can afford to put towards your loan each week, fortnight or month. Don’t forget to factor in any other debt you’re paying off, such as a credit card or mortgage.
Your loan aside, buying a car comes with a bunch of running costs, such as registration, stamp duty, car insurance and petrol. Roll these costs into your loan repayments, and you’ll have a good idea of how much money you’ll end up spending on your car over the life of your loan.
Top tip: If you crunch the numbers and realise you can’t quite afford the car you want, try to hold off on taking out a car loan until you’re in a better financial position. During that time, focus on budgeting and saving as much cash as you can instead. Remember, a car loan is a legal contract, and you don’t want to risk falling behind on repayments later down the road.
#2 Find out if you’re eligible for a loan
A car loan is a type of personal loan that allows you to purchase a new or used vehicle, and then pay back the loan with interest. If you’ve ever heard of dealerships offering “financing” or “leasing” options, they’re talking about car loans, which are the best way to finance a car. The average car loan in Australia is five years, but you can find loans lasting anywhere from 1 to 7 years.
The eligibility criteria for loans for first cars varies between lenders. In most cases, you’ll qualify if you’re an Australian citizen or permanent resident who’s over 18. You’ll also need to prove you have a job or a steady stream of income, as lenders want to make sure you’ll be able to repay the loan.
Next, lenders will also look at your credit history to see how you treat your financial obligations. For example, if you don’t always pay your credit card on time, there’s a chance you’ll do the same with a car loan, which makes you a riskier borrower. The bank might lend you less money to compensate for that risk.
If you’re buying your first car and don’t have a credit history yet, you may have a harder time getting your car loan approved — but it’s not impossible. Just be prepared to show you save some money every month, and have no history of debit card dishonour fees or late payments on bills (like AfterPay).
#3 Decide on a type of car loan
Once you’ve figured out if you’re eligible for a car loan, it’s time to settle on the kind of loan you want. There are two types available, and choosing one will help you to narrow down your car loan options.
With a secured car loan, you offer your new (or used) car up as collateral, so the lender has the right to repossess it if you miss your repayments. Since secured loans are less risky for lenders, they typically have lower car loan interest rates so you’ll pay less overall. Unsecured loans, however, don’t require any assets as collateral. Because of that, they have higher interest rates and you may end up with an expensive monthly repayment.
You might also hear about new and used car loans, but they’re just different types of secured car loans. New car loans tend to have lower interest rates because the vehicle has a higher value, while used car loans are usually open to cars that are 2 to 3 years old. If you’re looking at a car that’s more than 5 or 6 years old, you might need to take out an unsecured loan instead.
#4 Do a car loan comparison
Like with any large purchase, it pays to shop around. There are so many lenders competing for your business, and we strongly advise you to let them!
Here’s why. Along with requiring you to pay back the amount you borrowed, lenders charge interest on the loan balance at either a fixed or variable rate. With a fixed-rate loan, the interest rate is locked in at the Reserve Bank of Australia’s market rate, so repayments will stay the same for the life of the loan. Variable-rate loans fluctuate with the market, so your repayments might go up or down — which isn’t for everyone.
Car loans also come with a range of associated fees, such as administrative and annual fees. Some lenders even charge an early repayment fee if you pay off your loan before the due date.
All of these elements can affect how much your loan will cost you overall, which is why it’s so important to compare car loans to make sure you’re getting the best car finance deal.
#5 Get in touch with a car broker
As you can see, there are a few decisions to make when you’re financing your first car. The good news is, you don’t have to do all the legwork by yourself. Enter: a car broker.
Savvy’s team of experts know everything there is to know about car finance, and they can help you with the entire process, from comparing loans to putting together an application that’s guaranteed to get approved. They can also negotiate the best car loan rates on your behalf, and secure the lowest rate so you can keep more money in your pocket.
Another benefit of working with a top car broker like Savvy is their connections. They not only have relationships with an extensive network of dealerships across the country, but they also partner with over 25 of Australia’s top lenders. This means they can narrow down your options and point you towards the lenders that suit your needs and budget. Plus, they usually have access to “fleet pricing” since they broker so many deals each year, which could cut down the cost of your new set of wheels even more.
Lock in the best car loan now
There’s no better feeling than driving out of a dealership in your very own car, especially when you’ve saved up for the deposit and found a great car loan. While you can figure out the financing by yourself, calling a car broker can save you a lot of time and money in the long run and help you get your dream car sooner.
