If you want to buy a car but haven't saved enough money to pay cash upfront, you might decide to get a car loan.
If you buy a car from a car yard, the car dealer might offer to arrange the finance for you, but you don't have to get the loan through the car dealer. They may charge a higher rate of interest than other places. It's often cheaper to get a loan from your bank or credit union.
Interest rates and related fees and charges for loans can vary a lot so make sure you shop around for your car loan. Remember that you don't have to accept the finance offered by the dealers - you are free to shop around for finance and doing this often ensures that you get the best deal to suit your particular circumstances.
It's well worth taking the time to compare the terms of loans and interest rates offered by different financial institutions to get the best possible deal.
Only commit yourself to what you can comfortably repay.
Before you sign up for a loan, make sure you understand:
- The type of loan on offer
- All fees and interest rates, including insurance requirements
- The monthly repayments and interest dates, and
- The total amount you'll have to pay by the end of the loan period
The Australian Securities Investment Commission's MoneySmart (new window) website has some excellent car loan tips for you.
What will I need to budget for?
You've found your dream car. You're happy with the price tag... but wait... there's more!
The advertised price of a car is just the beginning. You need to budget for other compulsory expenses you'll incur, including:
- Car registration (new window) including mandatory third party insurance
- Government stamp duty and transfer fees (new window)
- The dealer's delivery charge (for new car buyers only)
- The number plate fee (only in certain circumstances)
Make sure you will have enough money to cover all of these expenses.
Don't forget to factor in day-to-day running costs into your budget. These may include:
- Insurance (new window) additional to what you paid as part of your car registration fee, which will cover damage to and caused by your car. Keep in mind that insurance can be costly and remember to include this cost in your budget
- Fuel, regular services, spare parts and repairs - remember that some cars have a reputation for reliability, but they may cost more to service
What if I can't make the repayments?
If you fail to repay the loan, your security deposit will most likely become the property of the lender. If the car itself is the security, it can be repossessed and sold for less than what you owe on it. You can end up owing and paying money on a car you no longer own!
If you're having trouble paying back the loan, it's important that you talk to the finance company as soon as possible to work out a mutually acceptable arrangement. Don't bury your head in the sand about it! Work out a way to manage your debt. See our Saving & spending pages for more information on managing your debt.
What are my rights and responsibilities?
Credit providers must tell you what your rights and responsibilities are under the Consumer Credit Code (new window). They must include all relevant information including interest rates, fees and commissions in a written contract. Read this thoroughly then ask questions to establish exactly what you are liable for.
Take a look at our Consumer rights page for more information.
Links for car loans
Consumer Affairs Victoria (CAV)
You'll find some information about your rights and responsibilities when it comes to buying a car and getting a car loan.
Victoria Legal Aid - Credit
General legal information here about loans.
MoneySmart - Car Loans
Great information here about getting a car loan and car insurance.
Money Stuff - Buying a Car
Tonnes of really useful information here to help you make an informed choice about buying a car and getting a car loan.