Second-hand smarts: Tips for buying a used car

Second hand smarts Tips for buying a used car

By Amy Bradney-George
14 January 2009

Used cars can be a financial blessing or a beast of burden if a personal loan is taken out for a dodgy deal. But insurance companies like the National Roads and Motorists’ Authority (NRMA) and the Royal Automobile Club Queensland (RACQ) report that a second-hand car is not a problem, so long as you know what you’re looking for.

As for the safety of the actual cars, RACQ vehicle technologies manager Steve Spalding has said research has found there are safe cars on the used market.

“The latest Used Car Safety Ratings results show second-hand vehicles providing a high level of crash protection are available at affordable prices. Safety just needs to be factored in when making the purchasing decision.”

 

Image by Dr. Keats

To help make the most out of your personal loan, here are some tips to guide you to a safe second-hand car purchase.

1. Money matters

The price range you settle on will help narrow down the types of cars you’re looking for, and also speed up the process of getting what you want. It’s worthwhile arranging a car loan or personal loan before looking at cars to cement your financial decision. Plus, good deals will be snapped up fast and if the money’s already available then securing the deal will be a lot easier for everyone.

2. Shop around

Check out a few different places before settling on a car. Used car dealerships, newspapers, trade papers and websites provide a good cross-section of the deals available and you’re bound to find at least one car you like by looking around. Searching in a variety of different places will help you develop a price gauge of what’s on the market and vehicles that represent true value for money.

3. Try before you buy

Always go to inspect your car in person and take it for a test drive before buying. Sometimes a good deal can be marred by rust, broken lights, bad brakes, fuel consumption or any number of other problems. Many insurance companies offer vehicle inspection services, and it’s definitely a smart move to take a friend along with you for an extra set of eyes.

4. Hidden history?

If a prospective car seller doesn’t have the vehicles history on hand, make sure you do a vehicle check before signing away. Stolen or damaged cars can lead to lost money and legal problems down the track. Further problems could arise if the seller still owes money on the car when you buy it. A number of insurance companies, auto mechanics and online services provide reliable vehicle checks and it’s always better to be safe than sorry.

5. Modifications

Car enthusiasts might modify a car long before they think of selling, but sometimes these changes are not legal. In the last few years there have been a number of changes to what features are legal on a car, so something acceptable five years ago may now be considered a dangerous addition. Don’t be afraid to ask the seller about modifications and check the state and national laws for any alterations.

6. The contract

Ask for a copy of the contract so that you can go through it thoroughly before agreeing to the terms and conditions of the sale. A car is an investment and it’s important to read and understand all legally binding contracts before you invest in anything of value.

7. Review registration papers

Check the registration to see when it expires and which state it is registered in. This information may be in the listing details for a car, but double-check anyway for surety and peace of mind. It’s no use driving a Victorian-registered car in New South Wales if you don’t have the proper paperwork filled out.

8. Car servicing

Regular servicing is an important factor in the longevity of any vehicle, old or new. Finding out how often a car has been serviced will not only indicate whether there is likely to be structural and technical problems, but could also suggest how regularly you need to service the car. This information should be in an owner’s manual, but if there isn’t one available for the car then the NRMA website suggests a service every 6 months, or every 10,000 kilometres (which ever you reach first).

When purchasing a second-hand vehicle figure out what works best for you. Always shop around for the best deals and keep tips like these in mind for more financial safety in your buy.

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Learn more about personal loans

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

How do I consolidate my debt if I have bad credit?

The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.

However, people with bad credit histories can make debt consolidation work by following this three-step process:

  1. First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
  2. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
  3. Third, instead of spending those savings, use them to pay off the new loan.

What interest rates are charged for personal loans?

Lenders aren’t allowed to charge interest on loans of $2,000 and under. Instead, they make their money by charging a one-off establishment fee of up to 20 per cent and a monthly account-keeping fee of up to four per cent. Lenders might also ask you to pay a government fee.

For loans between $2,001 and $5,000, lenders can make their money in only two ways: a one-off fee of $400 and annual interest rates of up to 48 per cent.

For loans of $5,001 and above, or for loans that have terms longer than two years, lenders can charge annual interest rates of up to 48 per cent.

Those fee caps don’t apply to loans offered by authorised deposit-taking institutions such as banks, building societies or credit unions, although such institutions are highly unlikely to charge interest rates of anywhere near 48 per cent.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

What is credit history?

Your credit history covers everything to do with applying for loans. It includes the number of loans you’ve applied for, the amounts you’ve borrowed and your record of meeting repayment schedules.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour because it suggests they might struggle to repay future loans.

Borrowers with bad credit may find it more difficult to be approved for a loan, or they may get higher interest rates when they do get approved.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.

What are the pros and cons of bad credit personal loans?

In some instances, bad credit personal loans can help people with bad credit history to consolidate their debts, which can help make it easier for them to clear those debts. This is because the borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate and potentially fewer fees.

However, this strategy can backfire if the borrower spends the loaned funds instead of using it to repay the new loan. Another disadvantage of bad credit personal loans is that they have higher interest rates than regular personal loans.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

What's a credit report?

A credit report is a record of your credit history, which covers your credit enquiries, borrowings and your repayments. The report will include information about any bankruptcies or other relevant legal judgements. It will also include biographical information such as your address, date of birth, driver's licence number and employment history. 

What is a bad credit rating/score?

Credit ratings or credit scores are calculated by credit reporting bodies such as Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. These are separate organisations, so they use different systems.

Equifax gives scores between 0 and 1,200:

  • 833 to 1,200 = Excellent
  • 726 to 823 = Very good
  • 622 to 725 = Good
  • 510 to 621 = Average
  • 509 or less = Below average

Dun & Bradstreet (through the Credit Simple service) gives scores between 0 and 1,000:

  • 800 to 1,000 = High end
  • 700 to 799 = Great
  • 500 to 699 = Average
  • 300 to 499 = Room to improve
  • 299 or less = Low

Experian gives scores between 0 and 999:

  • 961 to 999 = Excellent
  • 881 to 960 = Good
  • 721 to 880 = Fair
  • 561 to 720 = Poor
  • 0 to 560 = Very poor

The Tasmanian Collection Service doesn’t give scores. Instead, it prepares credit reports for credit providers and then lets those providers make their own assessment.