10 Financial Tips for Your First Car Purchase

Buying your first car is an exciting moment in anyone’s life. Largely because it gives you the freedom, independence and the ability to drive around wherever you want, whenever you want.

For many young Australians, it is also one of the first major financial decisions they have had to make. So, it is understandable they’d want to make sure they are getting their money’s worth.

According to the RACQ Young Drivers Survey of 2022, the average amount paid for a first car in Australia is $9000. This is a substantial amount for most teenagers, and actually represents a 50% increase from 2018.

Subsequently, if you are looking into a first car loan in Australia or trying to work out how much car you can afford, it is worth doing your due diligence. Here are ten practical tips you can employ to guide you through the process.

1. Work Out What You Can Actually Afford

Before you visit a dealership or scroll through different makes and models on car sale websites, it is advisable to review your finances. 

A good way to do this is to start by adding up your monthly income and then subtracting your regular expenses. This could be anything from rent and groceries to phone bills and subscriptions. Whatever amount is left over will give you a realistic idea of what you can comfortably commit to loan repayments.

2. Understand All the Costs Involved in Owning a Car

When weighing up how much you could reasonably outlay on a car, it is important to think beyond the repayment figure alone. Cars can be expensive to run, because they require:

• Registration
• Compulsory third-party insurance and comprehensive cover
• Fuel
• Regular servicing
• Tyres
• Occasional repairs

This could turn out to be more expensive than you first thought.

When budgeting for these car expenses, it is a good idea to break the annual costs into monthly amounts. Doing this will make them feel more manageable and give you a clearer view of what owning a vehicle will really cost you over time.

3. Save a Deposit Before Applying for Car Finance

Wherever possible, it is always preferable to buy a car outright with cash. This can make the process of buying a vehicle much easier and save you a lot of money on loan interest.

If you are not in a position to do so, try at least to put together a decent deposit. This will reduce how much you need to borrow. Even a modest amount of $1000 can make a difference, as it will lower your repayments and the total interest you pay over the life of the loan.

Additionally, lenders generally view borrowers who have saved up deposits more favourably during the car loan approval process.

4. Compare Car Finance Options

For those who need to borrow money to buy a car, there are several car finance options available in Australia.

They include:

• Secured car loans
• Unsecured personal loans
• Dealer finance
• Specialist lenders

Each of them tends to have different car loan interest rates, repayment terms and fee structures. Hence, it is important to take the time to compare more than just the advertised rate.

In particular, you should look at comparison rates, loan flexibility and any early repayment fees. If you are planning to buy a vehicle specifically for road trips, it is worth exploring car finance for wherever you’re going with Azora.

5. Understand the Car Loan Approval Process

The car loan approval process can be quite involved. That is because it usually involves providing proof of income, identification and employment details. Lenders will also assess your credit history to determine your eligibility and the interest rate you qualify for.

To make the process go more smoothly, it is worth keeping your financial records organised. Also, make sure you pay bills on time and limit unnecessary credit applications, as this can improve your credit score.

6. Decide Between Buying a Used Car or a New Car

When purchasing a car, you’ll need to decide what type you want. Not just in make and model, but also whether it will be a new or used vehicle.

There are advantages to doing both. For instance, new cars often come with warranties, capped servicing, and modern features. However, they typically depreciate faster, especially in the early years. By contrast, used cars are generally cheaper upfront and may hold value more steadily. But, of course, they are more prone to repairs, given their older condition.

Things like insurance premiums, servicing costs, and depreciation rates will be influenced by whether you purchase a new or an older vehicle. As, of course, will listing price.

7. Factor in Car Insurance Costs

Car insurance costs are often something first-time drivers fail to account for when purchasing a vehicle. However, they can add significant expense.

According to Canstar, the average annual insurance premium for first-time buyers is between $1,750 and $2,700. One of the main reasons why is that they have a limited driving history.

Before purchasing any vehicle, it is worth requesting insurance quotes from several companies. Make sure that comprehensive insurance, which provides wide protection, and mandatory compulsory third-party cover, are included.

It is worth noting that some vehicles will attract lower premiums than others. So, the model you choose will affect your ongoing expenses.

8. Avoid Long Loan Terms

Longer loan terms might seem attractive at first, because you won’t have to pay as much in monthly repayments. However, on the flip side, they will increase the total amount of interest you will have to pay over the course of it.

When reviewing a car loan interest rate, look at the overall cost over the entire term. As a general rule, the shorter the loan term, the better, so long as you can afford the repayments.

9. Budget for Unexpected Repairs and Maintenance

One thing you should be aware of when buying a car is that even the most reliable vehicles require maintenance. Tyres wear out, batteries fail, and parts need replacing, especially in older models.

That is why it is important to set aside money each month for unexpected repairs. Doing this will protect you from sudden financial pressure if your vehicle needs repair.

10. Think About Resale Value

While you might not intend to sell it for a long while, it is always worth considering a vehicle’s resale value. This is often overlooked by first-time buyers, but it can make a difference to how much you can recoup if you want to put it on the market.

Popular brands with strong records of reliability tend to retain their value better in the Australian market. Hence, you might want to stick to them.