Student Guide: Buying your first car

Information verified correct on February 28th, 2017

Driving is a huge responsibility and buying a car is a bigger one, so make sure you're prepared.

There are a lot of costs that will have to be covered and while you will be taking out a loan to pay for the car, you still need to cover the repayments every month. Then there's registration and insurance and this all needs to be paid right after you've just paid for your license and test.

Buying a car for the first time

Handling your finances when you have a car loan is extremely important. If you don't meet your repayments every month and depending on the type of car loan you have, the banks may have the right to repossess your car.

Make very sure that you aren't stretching yourself too thin and actually have sufficient income to cover the cost of the repayments as well as any other expenses, including maintenance, fuel, insurance and more.

Getting a car loan

Before even considering a car loan take a look at your finances. In fact, you should be aware of your finances at all times because if you develop good budgeting and financial habits, you will never have a problem getting a loan for whatever you need.

What you want to determine is exactly how much you can afford to pay in car repayments every month. You have to be objective and honest with yourself. If you lie to yourself about cutting out all the extras and get a more expensive car, you won't be able to cover the repayments and will end up hating it.

You'll probably have to sell it, which means you will incur a loss because you won't be able to get the same price you paid for it. Combined with the blemish on your credit history and all the stress involved, you can probably see why it's not a good idea to overspend on a car.



You'll need to compile a realistic budget which includes all your earnings and expenses. This will give you an overview of how much you spend every month and what you have left over. The amount you have left over is what you can put towards a car payment. With that figure, you can work out approximately how much you can spend on a car. Note that just because this is the amount you feel you can afford to spend doesn't mean a lender will agree with you.

Now that you know about how much you can afford, it's time to shop around. There are numerous options when it comes to car loans, which is why you need to carefully compare your options. Most car loans are secured loans, which means that you sign over an asset to the bank as security. In this case, it's the vehicle you are purchasing that will act as security. Keep in mind that while a secured loan usually means a lower interest rate, it also means that if you default on the loan, the bank can take away your car.

To avoid this situation, you can opt for an unsecured personal loan but such loans come with a much higher interest rate and the amount you can get is generally much lower.

Finding a loan with the lowest possible interest rate and fees is essential because a car is an asset that depreciates, which means that it loses value every day you own it, regardless of whether the vehicle was new or used when you purchased it. In other words, this is not an investment at the end of which you might make a profit, like with purchasing a home, which is why you need to make sure you are paying as little as possible on your car loan.

One good way to find an attractive car loan is to speak with your current financial institution. If you already have a credit card, savings accounts and transaction accounts with a bank, this means they already have all your information on file and might be willing to negotiate a better deal.

Once you've decided on the loan you want, you will have to fill out an application and submit it to the bank with all the relevant documentation. Note that it helps if you have a spotless credit history. The bank will assess your application and let you know whether or not you have been approved.

Keep in mind that some loans will require you to put down a deposit as well as pay the application fees so make sure you have sufficient money available to cover such costs.

If the dealership where you are purchasing the vehicle from is trying to convince you to take out one of the loans they are offering, you might be tempted to take it for the simple reason that it is more convenient.

The fact is that the loans offered by dealerships offer some of the worst conditions on the market, so you are better off avoiding them. A few hours of work doing your own research and looking for a better deal will pay off significantly in the amount of money you save in interest charges.

Learn more and compare car loans

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Insurance and registration

When purchasing a new car from a dealer, they may handle the registration for you. However, if this is your first time dealing with the Roads and Maritime Services, you will have to go to the registry yourself to provide proof of identity.

A current license or previous registration will be enough for the dealer to complete the registration for you and get you a registration certificate as well as number plates. However, there might be some fees you need to cover. They are as follows;

  • General registration charges
  • Stamp duty
  • Number plates
  • Compulsory Third Party (CTP) insurance premium - green slip
Insurance and registration costs

Registration fees represent a combination of tax and an administration fee and, for light vehicles under 4.5 tonnes, are calculated according to the tare or unladen weight of the vehicle. The heavier the vehicle, the higher the fees will be. Furthermore, a vehicle used for business reasons will incur higher fees.

Stamp duty is a tax collected by Roads and Maritime Services for the Office of State Revenue when the vehicle is registered by a different person or business. This tax is calculated according to the market value of the vehicle, or the amount you paid for it, whichever amount is greater. If the value is $45,000 or less, you can expect to pay three per cent and if the value of the vehicle is over $45,000, you can expect to pay five per cent.

The price for number plates differs depending on if you want to customise the plates. If you opt for standard number plates, standard plates will set you back $40, while auxiliary plates will cost $39.

If you decide to buy a used car, you should really think about checking the vehicle's history first. If the car in question hasn't been registered before, you will have to go to the registry with the following:

  • Proof of your identity
  • Proof of entitlement to register the vehicle
  • Proof of your residential address
  • A hard copy of a receipt for a green slip, leaving the number plate section blank
  • An identity and safety check report issued by an Authorised Safety Check Station, along with proof of repairs if the car is a repairable write-off
  • Number plates, if they are available
  • A filled-out Application for Registration form
  • Payment for general registration expenses, stamp duty and taxes and number plates
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What is CTP insurance or a green slip?

All cars need to have a green slip or Compulsory Third Party insurance coverage. Without it, Roads and Maritime Services won't renew your rego and the period of the green slip needs to be the same as the period of your rego. This policy also needs to be issued by an approved insurance provider.

This insurance policy provides cover for your passengers, other people on the road including drivers, passengers, pedestrians, as well as injuries caused by the use of a trailer, when you or the person driving your car are at fault for the accident.

Note that it does not cover damage to property or other vehicles, nor are you as the driver covered unless you suffer a serious injury, such as serious spinal cord damage or traumatic brain injury.

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Types of car insurance

Since the Compulsory Third Party (CTP) insurance is mandatory, it is also the most important type of insurance you can get. It provides coverage for the death or injury of persons involved in an accident where you are the driver at fault. Note that each state and territory has different regulations in terms of this type of insurance so to find out exactly what applies in your area, visit your state or territory traffic or transport authority.

There are also other types of car insurance available. They are as follows:

  • Third party property insurance, which covers you for damage done to the property of other people as well as your legal costs
  • Third party, fire and theft insurance, which covers you for damage done to property belonging to other people and also insures your vehicle up to a point for damage resulting from theft or fire
  • Comprehensive insurance , which is a complete policy that covers any damage your vehicle incurs as well as the property of other people, whether your car is involved in an accident, which includes fire, or the damage is caused as a result of being stolen

When determining what the best type of insurance for you is, you need to think of a few things. Firstly, you might be tempted to stick solely to CTP insurance because you think it's enough. However, what if you hit a luxury sports car? Can you afford to repair it? Do you really want to be paying off those repairs?

Even if comprehensive is too expensive for you, at least get third party property insurance along with your CTP so that you won't have to pay huge amounts to repair someone else's vehicle. And since you are still a relatively inexperienced driver, getting this insurance is even more important.

Note that because of your young age, you might have to pay slightly higher premiums. This is because, statistically speaking, young people cause the most accidents, which means insurers have to pay out on a larger number of claims for your age bracket. This means they need to recover their costs, which they do by charging higher premiums. However, slightly higher premiums are definitely worth the protection you receive.

Understanding the different types of car insurance
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A personal loan glossary

Below are some of the terms you need to be familiar with when it comes to loans:

  • Interest rate. The rate payable on the amount of money you borrow. The rate can be fixed or variable. A fixed rate means that the interest rate you pay will remain constant as you will be locking in the current percentage. A variable rate is one where the interest rate fluctuates according to various factors including the Reserve Bank of Australia (RBA) rate, market conditions and much more. The best option differs according to the economy. If rates are at an all-time low, then consider a fixed rate. However, if rates are high then a variable rate loan will let you take advantage of rate decreases if they come.
  • Interest and principal. This refers to your repayment type and signifies that it is made up of interest payments as well as principal payments. In other words, part of the money you are paying every month goes towards covering interest charges, while another part goes towards paying off the actual loan amount.
  • Comparison rate. This is a percentage that includes the interest rate as well as any additional fees and charges on a loan. So, while the advertised rate of a bank might be 5.49%, the comparison rate might be 6.75%. This number is a better indicator of the actual cost of the loan and is what you should be comparing when shopping around for a car loan.
  • Repayments. This represents the minimum amount you agreed to repay every month when you signed the loan contract. It is calculated according to how much you owe, the interest rate and the term of the loan. It also includes any ongoing fees if they apply. Repayments can be fixed if you opted for a fixed rate loan, which means that you will be paying the same amount every month. Likewise, it can vary if you've opted for a variable rate.
  • Term. This refers to the duration of the loan. Car loans can range from one to seven years. Note that the shorter the loan term, the less interest you will pay. However, the repayments will also be higher since you have to pay the same amount of money off in a shorter time frame.
  • Application fee. This fee is paid to the bank for them to process your application. It has to be paid before the loan is approved and you need to pay it from your own money. It can't be incorporated into the loan. Note that if your application is rejected, this fee will not be refunded.
  • Application fee. This fee is paid to the bank for them to process your application. It has to be paid before the loan is approved and you need to pay it from your own money. It can't be incorporated into the loan. Note that if your application is rejected, this fee will not be refunded.
  • Ongoing / monthly service fee. You might have to pay a monthly or annual account-keeping fee on your car loan and you might also have to pay a fee on how you are paying off your loan. For example, if you are paying via BPAY or if you are making additional repayments, fees might apply.
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Shirley Liu

Shirley is finder.com.au's publisher for banking and investments. She has completed a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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