Student guide: Buying your first car

Buying a car is just the beginning, and the sticker price is only the beginning of the costs. Vehicle registration, mandatory CTP insurance, car damage insurance and more all add up to significant ongoing expenses.

This guide takes you through what you need to know and what you need to do in order to get on the road legally and efficiently. It also gives you a rundown on car loans if you’re looking for finance.

What to know about car loans

Before taking out a car loan, or any other kind of finance, you should know what your repayment ability is. Miscalculating this can be a very costly mistake. There’s no point in taking out a loan if you won’t be able to keep up with the payments. Other general rules of thumb include the following:

• Look at all the terms and not just the rates.
• Don’t take out a loan without comparing it to other options first, especially if it’s being offered by a car dealer.
• Know exactly what your budget and repayment ability is to help narrow the field.

There are different kinds of car loans, but the following are some of the features you need to consider:

• Secured and unsecured. Secured car loans usually carry better rates, but involve putting the car up as collateral. This means the lender might reserve the right to repossess the car if you’re unable to keep up with repayments.
• The repayment period. This is the length of time over which you’ll be repaying the loan. Check whether the repayments themselves will be enough to cover the full amount or whether there’s a balloon payment at the end of it all.
• Repayment flexibility. Can you repay a loan early to save money? If this is a possibility, it can be well worth looking for a loan that lets you make early repayments at low, or no, extra cost.
• The rates. The lower the better, but there are also significant differences in the different types of rates. Fixed rates will stay predictable and the same, while variable rates can change over time.

Different types of loan will often include set features. The actual rates you can get and whether you’re able to get an unsecured loan are determined on a case by case basis. If you’re a reliable borrower with a good credit score, you might be able to get lower rates and preferable options.

This is just the tip of the iceberg. A car loan is a big financial deal and it’s worth learning about it and comparing a range of options before committing.

Here are some of the terms you might want to know about and a detailed explanation to help compare loans more effectively.

• Interest rate

  This is 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, which includes both interest payments and 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. If you’re only paying off the interest every month but not touching the principal, you are not actually paying off the loan and are simply paying the cost of having a loan.

• 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 bank’s advertised interest rate 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. 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 is the fee you pay to the bank to process your application. You have to pay this fee before the loan is approved and you need to pay it from your own money. It can't be incorporated into the loan. 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 based 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.

Buying a used car? Here's what you need to know

If it’s your first car, there’s a good chance you’re buying used. It can be a lot cheaper, but also a bit riskier.

One of the main things to do is check the car’s history before buying. This tells you if there’s any outstanding finance owing on the vehicle, which you might well be responsible for, as well as the car’s previous service and accident history. If it’s previously been written off or otherwise involved in a serious accident but looks fine now, it’s possible that the repairs were more cosmetic than anything else.

Even if it looks fine, the car might not be able to pass a vehicle safety test. In this case, you’ll either need to fork out a lot more for serious repairs or face the prospect of having bought a car you’ll never be able to legally drive.

Giving your car an inspection before buying as well as a test drive is highly recommended. If you’re using financing to buy a used car, there are also a few differences to know about, such as limits on the age of the car you’re buying. If you’re eyeing a specific car to buy with a loan, you’ll need to make sure you can get financing that suits.

What insurance do you need?

Jump ahead to your state:

NSW QLD NT SA WA ACT TAS

All cars must have Compulsory Third Party (CTP) insurance, often known as a green slip. In NSW and the ACT, you must get a green slip before registration. In all other states, you are able to do it at the same time as vehicle registration.

CTP is an insurance policy that covers you, other drivers, any passengers and pedestrians. Basically, it covers anyone who you might injure with your vehicle or a trailer you’re towing. In the event of an accident, the at-fault driver’s CTP insurance will be the one that needs to pay out. For example, if another driver injures you, their CTP insurance will be the one that pays out.

• How is the at-fault driver determined?

  • In a multi-vehicle accident, the at-fault driver will generally be whichever one cannot prove that the other driver was at fault.
  • If your car was the only one involved in an accident, such as if you drive into a tree, then you will typically be deemed to be the at-fault driver unless you are able to prove that another vehicle caused the accident, such as by driving on the wrong side of the road and running you off it.
  • If the accident was the result of plain bad luck, like hitting a kangaroo or having a heart attack while driving, then you are still the at-fault driver even if it wasn’t really your fault.

  The decision will often come down to police reports and the insurance companies. If there is no determination of cause, then both drivers involved in an accident might be deemed to be at fault.

CTP insurance does not cover any kind of property damage. If you are deemed to be at fault, you are not covered for any injuries except very severe ones, such as spinal cord damage or traumatic brain injury.

The procedure for getting CTP insurance, and your options, depends on your state.

New South Wales and the ACT

Here, it’s a bit more complicated. There are two different types of CTP insurance available:

• Standard CTP insurance. This is the same cover as everywhere else. It only has minimal cover for your own injuries if you’re found to be at fault for an accident.
• At-fault CTP insurance. This costs more but expands the cover to pay for more of your own injuries in the event you are at fault for an accident.

There are six different insurance providers which offer CTP insurance in NSW and the ACT. Fortunately, the standard cover offered by all of them is, for the most part, exactly the same, with the only difference being the price. Only three of these insurance providers offer the optional at-fault driver cover. The easiest way to get CTP insurance here is to do the following:

1. Decide whether you want to pay extra for at-fault driver cover.
2. Get a quote from all six insurers, or all three if you know you want at-fault cover.
3. Pick the cheapest.

None of the insurers is consistently cheaper than another because they set prices in different ways. What’s cheapest for one person, depending on their age and the type of car they drive, might not be the cheapest for someone else.

South Australia, Victoria, Tasmania, Western Australia and the Northern Territory

In these states, you get CTP insurance at the same time as you register your vehicle, and the price is automatically included in registration and renewal costs.

Queensland

You can get CTP insurance at the time of registration and switch providers when you renew your vehicle registration, or you can take out a policy directly from one of the four Queensland state CTP insurance providers. There may be differences in the cover and the price, and you will generally get the most value for money by comparing the four different insurers and picking a policy directly.

If you’d prefer a more hassle-free method, but without any guarantee of the lowest price or highest level of cover, simply get your CTP cover while registering your car.

Registering your car

If this is the first time you’re registering a vehicle in your name, you’ll need to go to a road services registry for your state to provide identification and get put in the system.

If you’re registering a car for the first time, you will need the following:

• Proof of your identity and residential address. A driver’s license will be enough.
• Proof of registration entitlement. This must show that you are the legal owner of the vehicle. Depending on how it came to be in your possession, it might be a sales contract or other proof of purchase, a written letter from a solicitor saying it was bequeathed to you or other written evidence.
• A hard copy of a receipt for a green slip (NSW and the ACT, and where applicable QLD, only).
• 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, taxes and number plates.

Additional car insurance to consider

Once you have a license, CTP insurance and your vehicle is registered, you are able to legally drive. However, taking it on the road is still a major risk without additional insurance. Your car is still not insured for any damage, and you aren’t insured for any kind of third-party property damage at all. In other words, you will need to pay for any property damage you cause while driving, whether it’s thousands of dollars for scratching a BMW’s paint job or hundreds of thousands for running into a house.

You have the following options for additional car insurance:

• Third-party property only. This is the cheapest, minimal level cover. This covers you for damage that you might cause to other people’s (third parties) vehicles or property.
• Third-party property with fire and theft cover. This costs marginally more than third-party only cover. It covers you for third-party property damage, as well as covers your own car against fire and theft, two of the most common causes of damage.
• Comprehensive car insurance. This is the complete cover option, and typically the only type of car insurance which can cover your car for damage sustained in an accident. It always includes third-party property cover, and depending on the specifics of the policy, it can also protect your car from hail, fire, theft, vandalism and more. It also tends to include additional benefits like roadside assistance, cover for towing costs, rental car hire when needed and many other options. It’s the most expensive type of car insurance, but generally not as expensive as one would expect compared to the more basic types and given the extra protection it offers.

There are a lot of different providers offering car insurance all around Australia, and costs vary widely between states. To find the right level of cover and the best value for cover, you can go around and get quotes from a wide range of different insurers, or you can use a comparison site to see a range of options in one place.

How much should I budget for upfront car costs?

You will need to pay the following fees:

• General registration charges.
• Stamp duty. This is a tax included in the price and is a percentage of the vehicle’s value.
• New number plates.
• Compulsory Third Party (CTP) insurance premium if you don’t have it already.
• Vehicle safety check fee if you haven’t done it already.

The amounts vary based on the state and on the type of vehicle you have. It also depends on what costs you’ve already paid. All up, you might expect to pay (very) roughly $500, or significantly more for expensive (over $45,000 cars), heavier vehicles or for cars that are used for business.

What about ongoing car costs?

In addition to the significant one-off expenses, like the first-time car registration costs and the cost of buying a car, many of the major expenses are ongoing. You probably don’t want to buy a car unless you know you’re able to keep up with the costs.

• Registration renewal. Car registration typically lasts for 12 months and you will need to renew it annually. Generally, you’ll receive advance notification when you’ll need to renew. A renewal fee will apply, typically around $60-$70, depending on your state and the vehicle. To renew a car, it also needs to have recently passed a safety check.
• Insurance. Your CTP insurance and additional car insurance both carry premiums that you need to pay on an ongoing basis. If you fall behind, your cover will lapse and you won’t be insured. The costs depend on your type of cover. Depending on the insurer, you can often choose whether you want to pay premiums fortnightly, monthly, quarterly, half yearly or annually. It will often cost less overall to pay premiums annually.
• Petrol and maintenance. The car’s running costs naturally include gas and ongoing maintenance, both of which depend on how far and how frequently you drive as well as on what kind of car you have. Practising routine maintenance costs hardly anything and can save you a lot of money over time.

If you’ve gotten a car on finance, then the repayments will also make up a significant, and important, ongoing expense.