Six things to look for when buying a car

Six things to look for when buying a car

Outside of a home loan, buying a vehicle is probably the biggest financial commitment you’re going to make in your life — so make it count! It’s also a highly personalised choice. Some people choose fuel efficiency over anything else, while others simply have to have a specific make or motor under their hood. 

But no matter what your tastes, there are certain things that every car buyer should be on the lookout for. Here’s how to clue yourself up before entering the vehicle market with wallet in hand. 

The right licensing

With such a big transaction, it’s important to make sure you’re protected as a consumer. This means making sure that the dealer you buy from is licensed. If you’re buying one online or from an unlicensed individual, you may not have legal protection to help you out if the sale goes awry, or the product turns out to be faulty. 

A licensed vendor is obliged to give you your rights, and can be liable if something goes wrong. What’s more, they have to disclose all relevant information about any damage the car has sustained if it’s used, as well as money owing on it — but more on that later.

A better deal than the price tag

One thing you can often do, especially if a vendor understands that you’re serious about buying, is price negotiation. A seller is always going to try and make as much as possible, which begins with a healthy price tag. If you do your research on both similar vehicles and the quality of the one you’re interested in, you might be able to haggle your way down to a fantastic deal.

This is true whether you’re going to a dealership or an unlicensed individual! 

Safety first

While the number of people dying on Australian roads each year is trending downwards, there were still 1156 fatalities nationwide in 2014. It’s important to do everything you can to minimise the risks, and this begins before you even buy a car.

Getting a vehicle checked out for all safety features is crucial. Don’t settle for something sub-standard that could put you at risk! Also, it’s important to do your homework on car insurance and costs to make sure you and your car are covered before you drive.

That the numbers match up

 

Another thing you have to be careful about when buying a car, particularly in a private transaction, is the mileage covered. Ask for a service history on a vehicle, and make sure the numbers on the odometer match up with what is recorded in these documents. 

 

If they don’t, then the books may be cooked — and you could be dealing with a dishonest trader! 

Finance options that suit you

If you have your eye on a particular car and are certain that it’s the one for you, then a car loan is going to be the next step. There are many options available to you, from more regular borrowing setups to balloon payments, where you pay less over the loan term and then a large amount at the very end.

Make sure you have a savings account balance that can handle a deposit, and as always, shop around. By comparing and contrasting different products you can see exactly what a certain loan is going to do (or fail to do) for you. 

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about car loans

What is vehicle finance?

Vehicle finance, also known as a car loan, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Vehicle finance can be used for both new and used vehicles.

Where can I find car loans for single mothers?

Single mothers can sometimes find that due to their circumstances the bigger banks can be less inclined to lend to them, but there are smaller companies and specialist lenders who can be willing to provide loans to people in a range of circumstances.

Single mothers could benefit from getting in touch with a car finance broker, as a broker is likely to have knowledge and access to options that are suited to their needs.

Advantages to using a broker:

  • Finance brokers often don’t charge for their services as they work on a commission basis from lenders.
  • Brokers will have industry knowledge and contacts within lending companies and is therefore more likely to be able to find the best deal for your circumstances.
  • Brokers are qualified professionals who are licensed under the National Consumer Credit Protection Act so have an obligation to follow responsible lending practices and to work in your best interests.

 

Where can I find car loans for single mothers?

Single mothers can sometimes find that due to their circumstances the bigger banks can be less inclined to lend to them, but there are smaller companies and specialist lenders who can be willing to provide loans to people in a range of circumstances.

Single mothers could benefit from getting in touch with a car finance broker, as a broker is likely to have knowledge and access to options that are suited to their needs.

Advantages to using a broker:

  • Finance brokers often don’t charge for their services as they work on a commission basis from lenders.
  • Brokers will have industry knowledge and contacts within lending companies and is therefore more likely to be able to find the best deal for your circumstances.
  • Brokers are qualified professionals who are licensed under the National Consumer Credit Protection Act so have an obligation to follow responsible lending practices and to work in your best interests.

Find car finance through a broker.

What is a commercial hire purchase?

A commercial hire purchase, or CHP, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. Once the final payment is made, you take ownership of the car. 

What is an establishment fee?

Some lenders will charge you an establishment fee, or one-off upfront fee, to cover the cost of setting up your car loan.

What is salary packaging?

Salary packaging is an arrangement you can make with your employer that can allow you to buy a car from your pre-tax salary. The advantage of salary packaging is that it will redue your taxable income.

What is CTP insurance?

CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.

What is trade-in value?

The trade-in value is the price you could realistically charge if you were to sell your car to a dealer while buying a replacement vehicle. Generally, a car’s trade-in value is less than its market value. That’s because the dealer has no interest in buying your car unless it can make a profit – which can only be done if the dealer has room to increase the price.

What is a green slip?

A green slip, also known as compulsory third-party insurance or CTP insurance, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your green slip will be used to pay any compensation due to anyone who might be injured or killed. However, a green slip doesn’t cover you for vehicle damage or theft.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

What is the principal?

The principal is the value of the loan that is still outstanding. So if a borrower takes out a $20,000 loan, the principal is $20,000. If the borrower repays $5,000 in the first year, the principal is now $15,000.

What is an LVR?

The LVR, or loan-to-value ratio, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have an LVR of 75 per cent. LVRs change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the LVR would now be 67 per cent.

What is equity?

The equity is the share of the car that you own. For example, if you take out a $15,000 loan to buy a $20,000 car, you have $5,000 of equity in the vehicle, or 25 per cent. (The lender has the other 75 per cent.) Equity changes over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, you would still have $5,000 of equity in the vehicle, but your share would be 33 per cent.

What is an asset lease?

An asset lease, also known as a finance lease or car lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back.