How To Finance A Car

How to finance a car: your step-by-step guide 

Whether you’re a first-time buyer or looking to upgrade, financing a car can be a game-changer. It makes it possible to drive away in your dream vehicle without a hefty upfront payment and luckily, the car financing landscape in Australia offers a bunch of options tailored to suit different needs and budgets. 

Navigating the world of car finance can feel a bit daunting, but it doesn’t have to be. With the right knowledge, you can secure a deal that fits your financial situation and lifestyle. We’ll walk you through everything you need to know about how to finance a car, from the types of loans available to the key factors you should consider. 

Ready to hit the road? 

Why finance? 

Buying a car outright simply isn’t an option for many, but luckily, financing a car comes with some great perks that can make it a smart choice. For starters, it lets you spread the cost over time, so your budget stays intact. This means you can get behind the wheel of a better car with the latest features, without emptying your savings account. 

It also means you can: 

• Upgrade your ride: Financing lets you drive a newer, more reliable car without having to save up the full amount first. 
• Keep your cash flowing: Instead of spending a big chunk of your money at once, you can keep your funds available for other needs or opportunities. 
• Boost your credit score: Making regular repayments on a car loan can help improve your credit rating, making future borrowing easier. 

Car financing options in Australia

When it comes to financing a car in Australia, you have a few options to choose from. Each comes with its own set of benefits and considerations, so it’s important to find the one that works best for you.  

• Secured loans: Use the car as collateral, generally offering lower interest rates but risking repossession if payments are missed. 
• Unsecured loans: Do not require collateral, meaning no risk to your vehicle, but typically have higher interest rates. 
• Car dealer finance: Conveniently arranged through car dealerships with potential special deals and promotions, though it’s always a good idea to compare car loans! 
• Novated leasing: A three-way agreement involving your employer making lease payments from your pre-tax income, beneficial for tax reduction but potentially complicated if you change jobs. 
• Personal loans: Flexible loans that can be used for various purposes, including car purchases, but usually come with higher interest rates and no collateral requirement. 

The perks of dealer finance

Getting car financing directly through a dealership comes with some great perks that can make your life a lot easier. 

For starters, it’s super convenient–you can choose your car and sort out the financing all in one place, often on the same day. At John Hughes, we have an entire finance team behind us to ensure competitive rates and quick approvals. 

Dealerships also often offer special deals you won’t find at banks or credit unions, like lower interest rates, cashback offers, or flexible repayment options. We have competitive fixed rates at John Hughes, meaning your repayments are locked in for the entire life of the loan. 

Key factors to consider

When financing a car, it’s important to understand the key factors that can impact your overall cost and financial health. Here are a few things to keep in mind. 

Interest rates

Interest rates will either be fixed or variable. Fixed rates remain constant throughout the loan term, providing predictable payments, while variable rates can fluctuate based on market conditions, potentially affecting your monthly payments. 

Make sure you compare rates! Shop around and compare rates from different lenders. Consider using online comparison tools and don’t forget to check for any introductory offers or special deals. 

Loan term

Consider the impact of a short-term loan versus a long-term loan, and the overall cost involved. Short-term loans typically have higher monthly payments but lower overall interest costs, while long-term loans have lower monthly payments but can cost more in interest over time. 

Monthly repayments

Consider your budget and what you can realistically repay monthly. Use online loan calculators to estimate your monthly payments and make sure your repayments fit comfortably within your budget by considering all your monthly expenses and financial commitments. 

Additional fees and charges

Be aware of common fees associated with car loans like application fees, ongoing account fees, early repayment fees, and late payment penalties. These can add to the overall cost of your loan. 

Always read the fine print, too! Carefully read all of your loan documents prior to signing to understand the full terms and conditions. Pay attention to any hidden fees or clauses that could impact you financially. 

Eligibility criteria

Depending on the type of financing you choose, you’ll need to meet certain eligibility criteria. Every lender is different. 

Age and residency 

You’ll generally need to tick a few boxes, including being over the age of 18 and being Australian citizen or permanent resident. There may be some cases where eligible visa holders can also apply for finance, but that’s dependent on the lender. 

Income and employment status

Lenders will want to make sure you have a reliable income to make your monthly repayments. This generally means being employed full-time, part-time, or even self-employed with a stable income history. 

In some cases, lenders might like you to have been in your current job for a certain period, usually at least 3-6 months. 

There may also be a minimum income threshold you need to meet, which can vary depending on the lender and the amount you want to borrow.

Credit score

Your credit score plays a big role in determining your eligibility and the interest rate you’ll be offered. A higher score can lead to better loan terms, while a lower score might require you to provide additional information or accept higher interest rates. 

Documentation

Make sure you have all of the required documents: 

• Proof of identity: Valid ID such as driver’s license, passport, or birth certificate.
• Proof of income: Recent payslips, tax returns, or bank statements to verify your income and employment status. 
• Proof of residence: Utility bills, lease agreements, or mortgage statements to confirm your residential address. 
• Credit history: Some lenders might request a detailed credit report. 

Steps to financing a car through a dealership

Financing a car through a dealership can streamline the process, making it both as convenient and efficient as can be. This is what you can generally expect from the process. 

Step 1: Assess your financial situation

Before you step foot in a dealership, take a close look at your finances. Calculate how much you can afford for a down payment and monthly repayments without straining your budget. Use online calculators to estimate your potential loan amount and repayment terms. 

Step 2: Research financing options

While dealership financing is often the best choice, it’s always a good idea to compare their rates and terms with those of banks and credit unions. Look into the interest rates, loan terms, and any additional fees involved. This will give you a benchmark to ensure the dealership’s offer is competitive. 

Step 3: Get pre-approval

Getting pre-approved for a loan can give you a clear picture of your budget and strengthen your negotiating position at the dealership. It shows sellers that you’re a serious buyer with financing already in place. 

You can apply for pre-approval online or directly through the dealership’s financial services. Provide necessary documentation, such as proof of income, employment details, and identification. 

Step 4: Choose your car

Once you’ve got a clear idea of your budget and the financing options you have available, you can get to the fun part–choosing a vehicle.

Don’t just consider the purchase price–also take into account the ongoing costs like insurance, fuel, and maintenance. 

When choosing your car, focus on what you need: reliability, fuel efficiency, and the features that matter to you. Make sure you test drive a range of makes and models to find the best fit. 

Step 5: Finalise the loan

Once you’ve chosen your car, the dealership’s financial department will help you complete the loan application. They’ll guide you through the paperwork and submit your application to their lending partners. 

Be prepared with all of your documentation for this step! Having everything ready to go can help the process run quickly and smoothly. Once submitted, your application will be reviewed and, upon approval, loan terms will be finalised. 

Step 6: Sign the contract and take delivery 

Carefully review the loan contract before signing. Make sure all terms match what was discussed and pay attention to details like interest rate, loan term, monthly repayments, and any additional fees. 

Make sure you understand your repayment schedule and the consequences of missing payments. Ask questions about your commitments if anything seems unclear. 

Once everything is signed, you’re ready to take delivery of your new car. The dealership will handle the registration and transfer of ownership, so you can drive away with confidence. 

Tips for getting the best car financing deal

Securing the best car financing deal can save you money and make your purchase more manageable. Here are some key tips to help you get the most favourable terms. 

Improve your credit score

Before applying for a car loan, check your credit score and look for potential ways to improve it. Pay off any outstanding debts, make timely bill payments, and avoid taking on new credit. A higher credit score can qualify you for lower interest rates and better loan terms. 

Negotiate the terms

Don’t be afraid to negotiate loan terms! Things like interest rate, fees, or repayment terms often have a degree of flexibility, especially if you have a strong credit profile or a pre-approved loan offer from another lender. 

Shop around

Look at the interest rates, loan terms, fees, and overall costs. Compare offers and shop around to find the best deal; this can give some good leverage opportunities. 

Consider a larger down payment

Putting down a larger deposit can significantly reduce the overall cost of your loan. It lowers the amount you need to borrow, which can result in lower monthly payments and less interest paid over the life of the loan. A higher down payment can also make you a more attractive borrower to lenders, potentially securing you a better interest rate. 

Common mistakes to avoid

There are a few common pitfalls we see car buyers fall into when financing their purchase. Knowing what they are and how to avoid them can save you from future financial headaches. 

1. Overextending your budget: It can be really tempting to go for a high-end model, but it’s also important to stay within your means. Make sure your monthly repayments fit comfortably within your budget, and consider all your expenses. Don’t forget to leave room for unexpected costs!
2. Ignoring the total cost of your loan: Don’t just focus on the monthly payment. Look at the full picture and calculate the total cost of the loan, including interest over the loan term, fees, and any additional charges. It’s important to understand the financial commitment you’re making. 
3. Not reading the contract thoroughly: It’s crucial to read your loan contract carefully and understand all of the details. Look for any hidden fees, prepayment penalties, and any clauses that could affect you later. If something isn’t clear, ask for an explanation before signing. 
4. Choosing the first financing option without comparing: Don’t settle for the first financing option you’re offered. Compare rates and terms from different lenders, including banks, credit unions, and dealership financing. This ensures you get the best possible deal. 

Drive away with confidence

Ready to drive away in your new car with the best financing deal? At John Hughes, we offer a range of flexible and competitive financing options to suit your needs. Our expert team is here to help you navigate the process, ensuring you find the perfect fit for your budget and lifestyle. 

Explore our huge range of new and used cars for sale and apply for the best and easiest car finance in Perth in just five minutes!