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There’s a lot to think about when buying your first car – the colour, the model, the accessories, whether to buy new or used – but one thing many people are unsure of how to properly plan for is how they will finance it, and which type of finance is best.
There are a lot of costs that can add up beyond the sticker price, from stamp duty to insurance. If you are looking at getting a loan it’s important to research your financing options and find a loan that will work for you.
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There are a few different types of first car loans that can suit most borrowing needs. Depending on what kind of car you’re buying and your own personal financial situation, you may want to consider one of the following loans:
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| Unsure | 34.75% | 35.49% | 44% | 39.39% | 32.19% |
| My bank | 33.05% | 35.15% | 36% | 33.77% | 38.46% |
| Cheapest rate on the market | 24.58% | 23.89% | 14.67% | 19.91% | 22.22% |
| A big 4 lender | 5.08% | 4.78% | 5.33% | 6.49% | 6.55% |
| Peer-to-peer lender | 2.54% | 0.68% | 0.43% | 0.57% |
When looking at financing options for your first car, it’s important to know how to compare loans to make sure you choose the right one for you. When comparing, keep the following points in mind:
A comparison rate is essentially a more accurate representation of the cost of a loan than the interest rate. This is because it takes into account any mandatory fees that are included in the loan. For example, an interest rate on a loan could be 9%, but the comparison rate 11.7%. This would mean that there are fees attached such as an establishment fee or monthly fees. Please note that comparison rates do not take into consideration late fees or early repayment fees, as they are not mandatory.
Whether you need a secured or an unsecured car loan will depend on your financial circumstances, preferences and the age of the car you are purchasing. Secured car loans tend to be cheaper than unsecured car loans, as there is less risk to the lender. This is because if you default on a secured car loan, the lender has the right to repossess your loan security (usually the car in question) to cover the cost of the loan.
However, secured car loans usually have restrictions, such as a minimum loan amount and the age of the car. So, if you want to buy a used car, it might be more difficult to procure a secured car loan.
Unsecured loans on the other hand, while generally more expensive than secured loans, are more flexible. They are also more easily accessible if you are looking to buy a used car. However, you will likely be required to have at least a fair credit score in order to qualify for an unsecured loan, as there is a greater risk to the lender.
For more information on secured vs unsecured car loans, please refer to our guide.
Buying a new, used or demo car all have their advantages and disadvantages. See below to find out the pros and cons of buying each type of car.
PPSR is the Personal Property Securities Register. It is the official database of secured property. When it comes to purchasing a car, it is the only way of making sure you are purchasing the full title and ownership of that vehicle, and not unknowingly buying something that someone else already has a claim to. Therefore, it's important to do a PPSR search when buying a used car.
To do a PPSR search on a used vehicle, you need only the Vehicle Identification Number (VIN) or chassis number of the car you are searching. You can do a PPSR search at https://transact.ppsr.gov.au/.
You'll also get a search certificate which you can use as a legal record of your results. For more information on PPSR, please refer to our guide.
When considering the cost of a car, there's more to consider than just the purchase price. Some common additional costs that you may have to pay when buying your first car include:
A deposit
Inspection costs
GST (where applicable)
Registration
Stamp duty
Registration fees
Dealership fees
Accessories
Compulsory third-party insurance
Compulsory credit insurance
GAP/motor equity insurance
Whether you will be required to pay some or all of these costs will depend on whether you get a new or used car, and where you make the purchase. For example, if you buy from a dealership, the stamp duty and registration will usually be sorted for you (but you may be required to pay dealership fees). If you buy from a private seller, you can avoid the dealership fees, but will likely have to sort out the stamp duty and registration yourself.
Whether you can cover these costs using your car loan will largely depend on the deal you opt for and whether the loan is secured or unsecured.
An unsecured car loan can be used to cover any of the above costs, provided that you can qualify for a large enough sum. However, as mentioned above, an unsecured car loan will usually be more costly. If you are opting for a secured loan, speak to your lender to see which additional costs can be covered with your loan.
A balloon payment is a feature available with some car loans that allows you to make a single, lump sum payment at the end of your loan term to cover the remaining cost of your loan. It has certain benefits, such as reducing your repayments over the life of the loan. For more information on balloon payments, and whether they're right for you, please refer to our guide.
Getting your first car loan can be a daunting prospect. However, if you ensure that you check everything off this list, you can ensure that you'll get the best possible loan for your circumstances:
Make a budget. What can you afford? Consider the cost of the car you want to buy, but also consider the cost of the loan repayments. Work out exactly what you can afford to repay each month, and from that, you can more easily discern the kind of loan that will suit your budget. You can use a car loan calculator to help you with this.
Compare your financing options. It's important to do your comparison work when looking for car loans. For this, you can use a comparison website like finder.com.au. Our comparison tables can clearly show you the interest rate, fees, loan term, and minimum and maximum loan amounts available with each lender product. You can also do your own research within the market.
Check your eligibility for a car loan. If you don't meet the minimum eligibility criteria for a loan product, chances are that you won't be approved for that loan. If the eligibility criteria is unclear, or you're not sure about whether you meet certain requirements, it's best to contact the lender to discuss it with them, prior to submitting a loan application.
Learn more about car loans. Research, research, research. The more you understand something, the better the deal you can likely strike up. Luckily, we have numerous handy car loan guides at your disposal. Some of our most popular include:
Apply for a car loan. Once you've done your research and are sure of the loan that's right for you, it's time to apply. Applications are usually online and only take a few minutes to complete.
Before you apply for a loan for your first car, do your research and compare your loan options. This loan may be with you for a few years and you’ll be glad that you spent some time finding the right loan for you. You should not only look at the interest rate on offer but also the fees and charges you may incur over the life of the loan. Calculate your repayments and make sure they will be manageable on your budget.
Compare your options using the comparison table above. Once you have found a loan you are happy with, click the "Go to site" button to be securely transferred to the lender’s website. You will generally need to be over the age of 18 and be a permanent Australian resident. You will also need to provide the following details:
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