How to buy a car: everything you need to know

Before you begin browsing car listings, it's sensible to determine your budget. Understanding your financial limits helps narrow down your options and can limit the chances of overextending yourself. To calculate your budget you might want to consider a range of factors including:

Total cost of ownership

Consider not only the purchase price and vehicle stamp duty but also ongoing costs like car insurance, fuel and services/maintenance. Including these as part of your budget can provide a clearer picture of how much you’ll need to spend upfront and over the course of ownership. Understanding the total costs may affect your price point and the type of vehicle you purchase.

Car loan calculators

A borrowing power calculator assesses your personal financial information to offer a general idea of your “borrowing power”. That is, how much you can afford in order to adequately service a loan. A repayments calculator can help you determine your estimated repayments and the total interest payable on a car loan.

You can utilise resources like RateCity's car loan calculators to estimate how much you might be able to comfortably borrow, interest rates, the size of monthly repayments, and loan term durations if you're considering financing your purchase.

Faced with a choice of multiple car loans, you can input various interest rates and loan durations to assess how your repayments may fluctuate in different scenarios. This approach may assist you in identifying a car loan that aligns more closely with your financial constraints and objectives.

Emergency fund

It may be handy to have an emergency fund for unexpected expenses, such as unforeseen repairs that may crop up shortly after buying, so you're not entirely reliant on your hard-earned savings.

Deciding between a new or used car is a choice that will depend on your preferences and priorities.

Buying a new car

Consider a new car if you want the latest features, warranty coverage, and the assurance that you're the vehicle's first owner. New cars also come with predictable maintenance costs and the knowledge that it hasn't been involved in any accidents. However, they are more expensive and can experience rapid depreciation in the first few years.

Buying a used car

Opt for a used car if you're looking to save money and don't mind missing out on the newest features. Used cars offer better value for your money, and you can find well-maintained, low-mileage vehicles that are in excellent condition. However, you should be diligent in inspecting the car's history and condition.

Safety is paramount when buying a car, and buyers often seek assurance that the vehicle they are considering will provide the utmost protection in the event of an accident. To address these concerns, potential buyers commonly inquire about two critical aspects of a car's safety: crash test ratings and the presence of advanced safety features.

Crash test ratings

One of the primary concerns for buyers may be how a car performs in crash tests. You can discover safety ratings from organisations like the Australasian New Car Assessment Program (ANCAP). These ratings assess a car's ability to protect occupants in various collision scenarios, such as frontal, side, and rear impacts. Top safety ratings in the ANCAP system indicate a high level of protection that aligns with Australian safety expectations.

Advanced safety features

Features such as adaptive cruise control, automatic emergency braking, blind-spot monitoring, lane-keeping assist, pedestrian detection, and forward collision warning might be important to a buyer. These features are designed to help prevent accidents or mitigate their severity. Enquiring about such features reflects a proactive approach to safety and a desire for added peace of mind while on the road.

Impact on insurance premiums

Vehicles with top safety ratings and advanced safety features may qualify for lower insurance premiums, which is a substantial consideration for the cost of car ownership.

One of the fundamental steps in buying a car is the test drive. But what do you need to know when testing a brand new or used vehicle?

If possible, test drive cars in various conditions, including city traffic, suburban roads, and on the highway. This helps you understand how the car performs in different scenarios. Listen for strange sounds, check that all the different features are working properly and that the vehicle hasn’t racked up hundreds of kilometres before agreeing to make your purchase.

Don't hesitate to ask the salesperson or dealer about any specific features or concerns you have during the test drive. They can provide valuable insights and address your questions.

Test driving a used car

Used cars are generally more affordable and have already gone through the steepest depreciation. Test driving a used car allows you to assess its condition, how it drives, and whether it meets your needs.

Test driving a new car

New cars offer the latest features, warranties, and that “new car smell”. Test driving a new car allows you to experience the latest technology and safety advancements. Don’t simply expect a new car to run perfectly just because it’s new. Give it the same assessment you would a used car.

Getting a car loan can sometimes be as daunting as finding the ideal vehicle, given the amount of research and paperwork involved. 

When you apply for any kind of loan, the lender wants to be sure they'll get their money back. They usually give the green light when they think you can reasonably repay the loan. However, the bank may reject an application if the borrower doesn’t meet certain criteria.

But don't stress; getting a car loan doesn't have to be a big headache. If you're well prepared you’ll have the confidence to apply when it makes sense for you. To help you score the car you want we've got a step-by-step guide on how to apply for a car loan.

To help you compare car loan options and choose the right one for your financial needs and situation, you’ll want to understand the factors that go into forming a car loan:

Interest rate

A loan's interest rate comprises two components: the advertised rate and the comparison rate. The advertised rate represents the interest you pay solely on the loan amount, whereas the comparison rate is the advertised rate along with upfront and ongoing charges. When evaluating your loan options, consider both rates to gain a comprehensive understanding of the overall cost of your car loan.

Type of rate

There are two types of interest rates: fixed rates and variable rates. With a fixed rate loan, your repayments will be the same throughout the life of the loan, which could make budgeting more manageable. If you choose a variable rate, however, the rate can fluctuate based on the market during the loan’s term, meaning your repayments could potentially increase or decrease.

Type of loan

Choose between a secured car loan, in which the vehicle is used as collateral on the loan, and an unsecured car loan. Lenders will typically charge higher interest rates for unsecured car loans because they regard them as riskier than secured car loans.

Loan term

A shorter loan term (1-3 years) may mean higher ongoing repayments but less interest charged overall, while a longer loan term (4-7 years) will mean lower ongoing repayments but greater interest charged overall.

Fees

Fees typically include the following:

• Application fees, also known as upfront fees
• Establishment fees
• Account-keeping fees, such as monthly fees or ongoing fees
• Early repayment fees
• Early exit fees
• Redraw fees

Additional features

Some car loan lenders offer helpful features including:

• Ability to make extra repayments: Make additional repayments on top of your regular repayments so you may save money on interest and pay off your loan faster.
• Redraw facility: Having a loan with a redraw facility means you may draw down on any additional payments you have made, which can come in handy if you need to access some extra cash down the track.

Buying a new car is an exciting but significant financial decision. To make the process as smooth as possible, consider the following factors:

Visit dealerships

Visit several dealerships that sell the brand and model of the car you're interested in. You can use the information you've gathered during your research to ask specific questions and make informed decisions. Be prepared to compare prices, offers, and incentives.

Check for incentives and rebates

Inquire about any manufacturer or lender incentives, rebates, or special offers that may be available for the specific model you're interested in. Manufacturers and lenders often provide promotions, such as those for green loans and electric vehicles that can save you money on a new car.

Negotiate the price

It’s not only used car sellers that accept price negotiations. Be prepared to negotiate the price with the dealer. Research the fair market value of the car and use this information as leverage during the negotiation. If the dealer won't meet your budget, be ready to walk away.

Evaluate trade-in options

If you have a vehicle to trade in, consider the trade-in value the dealer is offering. You can also get a quote for your trade-in from multiple sources to ensure you're getting a fair deal.

Review the warranty

Review the warranty terms and understand what is covered and for how long. New cars typically come with manufacturer warranties, but it's important to know the details.

Research financing options

If you plan to finance the purchase, explore financing options. You can obtain financing through the dealership, a bank, or a credit union. Compare interest rates and terms to find the best deal to suit your budget and requirements.

Check the car when taking delivery

Inspect the new car thoroughly when you take delivery. Check for any damage or imperfections and make sure all features and accessories work as expected. If you notice any issues, report them to the dealer for resolution.

Purchasing a car privately can often be more cost-effective, but also requires careful consideration to make a safe and informed purchase. Here's a list of points to consider when buying a car privately:

Research the seller

Verify the seller's identity and ensure they are the legal owner of the vehicle. Check their identification, such as a valid driver’s licence, matched the details on the car's registration papers.

Obtain a vehicle history report

A pre-purchase car inspection can also be incredibly helpful in making an informed decision. This is because it can assist in avoiding potential pitfalls such as hidden issues, outstanding finance, mechanical problems, and unexpected repair costs. Additionally, a comprehensive inspection can provide you with valuable negotiation leverage and peace of mind.

You may also wish to request a vehicle service and repair history from the owner, which can reveal any accidents, or other issues with the car. Be sure to check that the car isn’t stolen, hasn’t been submerged in water, and that the engine hasn’t been replaced.

Thorough inspection

Inspect the car thoroughly, or consider hiring a mechanic to assess its condition. Look for signs of wear and tear, damage, and any issues that might affect the car's performance.

Negotiate the price

Private sellers are often more open to negotiation. Use the information you've gathered during your research and inspection to negotiate a fair price.

Transfer of ownership

Complete all necessary paperwork for the transfer of ownership. This includes submitting a Notice of Disposal to the relevant state or territory authority. Make sure that the previous owner also signs and completes any necessary documentation.

Ensure payment security

It may be sensible to avoid paying in cash as this can more easily be disputed if an issue arises. If you do pay cash, ensure you get a signed receipt from the seller listing the full amount paid, date and terms of the sale. Consider using electronic bank transfers or other secure payment options when possible.

Negotiating the price of a car is a common practice, and it can save you money. If you’re buying your first car, while this can be exciting, make sure to strike a balance between what looks good or what your fantasy may be and what’s sensible to purchase for your needs.

It’s often worthwhile haggling over the price of a used car in Australia. We’re clearly a nation of bargain hunters. Here's some points to help you negotiate more effectively:

Do your research

Look online, take test drives, check with family and friends and read recent articles to narrow down your search to find the most ideal and appropriate car for you and your budget.

Know the market value of the car you're interested in. Websites and tools like Redbook and the Australian Government's Green Vehicle Guide can help you determine the fair market price. These are popular, widely accepted valuation resources.

Know your budget

Stick to your budget, and don't be swayed by aggressive sales tactics. A clear budget can help you maintain control during negotiations and sets the parameters for your borrowing power. It’s smart to buy within your means and avoid the risk of overextending yourself.

Take into account other costs such as stamp duty, registration, insurance, necessary repairs and any optional extras. Negotiate on the total "on-road" price, not just the initial vehicle cost.

Inspect and highlight issues

During the negotiation, point out any issues or imperfections in the car that might justify a lower price. Be specific about what you've observed. You may discover any potential flaws during a test drive and when listening to the engine while idle.

Get multiple quotes

Don't limit yourself to a single seller. Get quotes from different dealerships or private sellers to compare and leverage better offers. Having a number of options helps to provide perspective and choice.

Start low

Begin your negotiation with a lower offer than you're prepared to pay. This leaves room for compromise and allows you to work towards a price that both parties find agreeable.

Understand the seller's motivation

Try to understand the seller's position. Are they in a hurry to sell, or is the car in high demand? This can influence their willingness to negotiate. However, don’t let their position impact your decision.

Be prepared to walk away

Don't feel pressured to make a deal. If the seller isn't willing to negotiate to your satisfaction, be ready to explore other options. Saying “no” can also potentially lead to the seller reducing his or her price in the hopes of securing a sale.