Car Buying Guide: How to buy a car

Visual inspection

Check:

• There are no signs of previous accidents, hail or other damage, and no chips or imperfections in the paint. You should know about every scratch on the car before buying.
• For improper sealing: Pop the hood, open the trunk and try all the doors and windows. It should all work smoothly and evenly.
• For panel irregularities: All body panels and doors should be flush.

On the inside:

• Pay special attention to the electronics and check that all the functions work.
• Check the condition of all the upholstery.
• Check that all the lights are functioning.
• Ensure that the windows, air conditioning, audio and all other electronics are working.
• Where possible, lift the carpets and look inside the doors for any signs of damage or repairs.

Other things to look for:

• Paint. A new paint job on an old car might be hiding something and you're generally better off with the original paint. Watch out for any signs of painted-over imperfections, bubbles under the paint and mismatched paint on adjacent body panels.
• Tires. If you'll have to replace the tires after buying, then factor that into the cost and don't pay too much for the car. Tires should also wear down evenly. If they're not evenly worn then there may have been a previous accident or the car might have other problems.
• Glass. This can be expensive to replace, so pay special attention to any chips or cracks in the windows, indicator lights, mirrors and anywhere else.
• Under the car. Don't forget to inspect under the car. Rust often starts here, so look out for any signs of corrosion or other damage.

The test drive

As you drive, check that:

• You can change gears smoothly and quickly.
• The engine power is appropriate for the car.
• The car tracks in a straight line and doesn't drift. The car shouldn't pitch on corners and the steering wheel shouldn't pull or try to straighten itself unduly.
• The brakes respond effectively.
• The electrics, dials and other interfaces are all working properly and the speedometer is working accurately.
• The temperature dials, car engine light and all other indicators are not showing problems.
• There is no irregular engine noise.
• You've paid attention to the suspension and transmission.
• The exhaust emissions are reasonable.
• All the headlights, tail lights and interior lights work.

Checking the car's history

If a car passes the inspection and test drive, the last thing to do before buying is to check its history. Unfortunately there's a very good chance it won't pass a history check. But that's exactly why you need to do it.

You're checking two things in particular. The first is whether there's any finance owing on the vehicle and the second is its service history, including previous repairs and whether it's ever been reported stolen or written off.

• PPSR check. This is how you check whether a vehicle is encumbered. With the car's VIN number you can easily do it for free. If a vehicle is still under finance it usually means the seller bought it with a car loan and is now trying to sell it before the loan is paid off.
• Service history. You can also do this yourself for free, but you may not be able to get the full results.

If you don't want to DIY, you can pay a car history service to check these for you. It generally doesn't cost much and usually includes both a PPSR and service history check.

Paying for the car outright

You can use your existing savings to cover the cost of the car.

• There's no need to pay interest when you pay it all upfront.

• You need to have enough saved.

Regular car loan

You can apply for a car loan with a range of banks, credit unions and non-bank lenders. You borrow what you need to buy the car and then repay the loan over a set term, plus interest.

• There's a wide range of options. For example, a good credit applicant might get more competitive rates, or you might choose to borrow only the amount you need and pay the rest with savings. You can also consider the loan terms and conditions at your own pace, outside the car dealership.

• You'll need to meet certain eligibility requirements. Most lenders will require that you're over 18 years old, an Australian citizen or permanent resident and currently employed.

Pre-approved car loan

This when you get approval from a lender for a certain amount before selecting a vehicle. You can then use the funds to cover the cost of the car you want.

• It helps you to know where you stand and how much you can borrow.

• You might borrow too much or too little. If the car you choose won't be covered by the loan amount, you'll need to find additional funding, and if you borrow too much, you'll be stuck paying unnecessary interest.

Chattel mortgage

This is a business vehicle finance option that lets you lease a vehicle while taking immediate ownership.

• Chattel mortgages may be more flexible and provide tax benefits.

• It's only available for business vehicles.

Additional costs when buying

• Stamp duty: This is a type of tax. When you buy new or used from a dealer it's generally built into the sticker price, but when you buy from a private seller, stamp duty needs to be paid when transferring ownership. You'll typically see this as a "dutiable value" field on the transfer documents. The amount can vary widely, but for a typical used car, one might expect to pay around 3% in stamp duty. See how it works in each state to find out how much you'll have to pay in stamp duty.
• Extras and modifications: The price you get at a dealer will depend largely on which features and extras are thrown in. This can turn the price thousands of dollars either way. Generally, it might be a good idea to turn down any extras you don't want in order to keep costs down. The same might be true when buying used from a private seller with a modified car. If you don't care about the mods, you might want to give it a miss to avoid overpaying.
• Registration: For new cars, you'll have to pay a fee to register it. And if you're buying used, you'll need to pay a fee for the transfer of registration/ownership (generally around $20 to $30 depending on the state). The cost of renewing your registration or registering a new car varies widely depending on your state, whether you can get any concessions and other factors.

Additional costs after buying

• CTP insurance: Compulsory third party (CTP) insurance is the mandatory car insurance to help cover the cost of injuries sustained on the road. It works differently and costs vary depending on your state. In all states except NSW, it can be attached to your car registration and built into the cost of new and renewed registrations. In NSW your CTP insurance takes the form of a separate "green slip" and you can shop around for better prices from different insurers.
• Additional car insurance: It's not mandatory, but additional car insurance is generally a good idea. The cost can vary widely depending on the type and quality of cover, the insurer and your personal circumstances.
• Maintenance and fuel: It's worth planning for operating costs. The cost of fuel and routine car maintenance will depend on the type of car and how much you drive.
• Car loan repayments: If you're not careful these might become a major headache. You should know how much the repayments will cost before taking on a car loan.