9 Smart Tips for Financing Your Next Car Purchase In Australia

Discover smart tips for financing your next car purchase in Australia. Learn how to secure the best deals, compare loan options, and make informed financial decisions for your new car. So you’re planning on buying a new car. Regardless if it’s purchased from a car dealership or a previous car owner, you’re bound to spend at least a couple thousand dollars on your new ride. 

For most car buyers, the cost of purchasing a vehicle can take up a significant portion of their budget.

Fortunately for new car owners, most car dealers provide flexible payment terms to help you spread out your payments over time and make the repayment cost more reasonable. This allows buyers to get either a better deal or better payment terms for their purchase.

That said, you may feel overwhelmed by the array of financing options you can pick from. With loans and leases, picking the right one can be challenging, especially for first-timers or for those who want to optimise their purchasing strategy.

If you’re at the crossroads of making the best decision for your next purchase, you’ve come to the right place. In this article, we’ll assess and put forward the best strategies you can apply to finance your next car purchase strategically.

Read on to learn these tips!

1. Review Your Finances and Cash Flow

Before buying a car, ask yourself honestly: can you afford the purchase? 

While you may have a sizable capital on hand, it’s essential that all the other financial aspects of your life are covered as well.

For instance, if you’re running a business, be sure that the purchase won’t strain the operational capacity or cause you to lower wages.

Look at your historic income and expenses. If the numbers look healthy and stable, and you may consider the purchase if you don’t have a massive pile of debt.

Always look at your finances in context. While owning a car can unlock a world of possibilities, it’s still expensive equipment at the end of the day. If it’s not a key part of your operations or life, then it could be collecting dust and costing you money for a long time.

2. Boost Your Credit Score

Another tip to follow before buying a car is to boost your credit score. Lenders are very critical of your ability to pay back the loan, and they can quickly reject your application if you don’t meet their standards.

One of the first things they’ll scrutinise is your credit score. This numerical figure is a reflection of your ability to settle past debt obligations. If there’s a habit of postponement or if numerous inaccuracies in your credit reports, this can be a strike against you.

As such, it’s essential to ensure that your credit score is high before applying for loans. You can boost your credit score by paying any pending outstanding bills, being timely in your payments, and not maximising your monthly credit card limit.

By doing these things consistently, you can gain a higher credit score, which can grant you access to better loan options when scouting for them. 

3. Know All Financing Methods

If you’re playing with a limited fund pool, it’s essential to consider multiple financing options to score yourself the most favourable deal.

Here are some of the most common financing methods in Australia:

• Car loan: You can apply for this type of loan from a bank or lending business. Interest rates, payment terms, and security terms may vary. For used cars, there’s also the used car loan.
• Dealership financing: Your car dealership may allow you to spread your finances across a longer term, granting you bonuses and benefits as you do.
• Hire purchase: A popular loan scheme wherein a buyer makes monthly payments to the car and eventually owns it at the end of the term upon full payment.
• Novated lease: A three-way agreement between you, your employer, and a financier, where lease payments are made from your pre-tax income.
• Chattel mortgage: A commercial loan where the vehicle is used as collateral. Westpac covers this topic in more detail.

By familiarising yourself with these financing methods, you can become more informed in choosing the best one given your financial capabilities and circumstances.

4. Save for a Big Down Payment

Spreading out your term length can lower your monthly rate, but it often results in a higher total purchase cost due to accumulated interest.

As much as possible, it’s best to pay a larger down payment—one of at least 20% would suffice. This can lower the overall payment of the car by reducing the monthly interest rate. 

Some lenders may also be more likely to approve your loan as seeing a large down payment can signify to them that you’re financially responsible.

Of course, being able to pay that much entails having enough savings to cover the cost of a down payment. 

You can increase your savings by cutting unnecessary expenses, setting up automatic transfers to a dedicated savings account, or redirecting any extra income, such as bonuses or tax refunds, toward your down payment fund.

You can also consider increasing your income sources, whether passive or active. By doing these, you can slowly and more quickly gather enough money to fund your car purchase.

5. Determine Whether Leasing is an Option

Have you ever considered just renting out a car? In some cases, you don’t have to opt for car ownership at all. Car ownership entails costs beyond just the purchase price; it also requires you to pay for taxes and repairs. Depreciation costs are also something to contest. In short, there are a lot of ways your money can go down the drain when owning one.

If you want to maintain a consistent cash flow and don’t see yourself owning a car permanently just yet, you can consider signing into a leasing agreement with a car provider. This is significantly cheaper than buying a car and you have the flexibility to return the car whenever it has served its purpose.

Furthermore, leasing also allows you to get a new car whenever you want to break free from your contractual arrangement. This will entail a new expense breakdown, but it allows you or your business to enjoy the latest vehicle option—which can be enticing in its own right.

6. Negotiate and Vet With Lenders

When buying a car, don’t immediately sign the first contract handed to you. You should consider asking around and negotiating with multiple lenders to find the one that offers the best payment terms and contractual rates.

Don’t just look for one type of financing either. Consider banks, credit unions, and dealerships and inquire about their terms and conditions. Compare and contrast the pros and cons of each type of financing. 

Try to negotiate with them for better rates and terms. If you have a bargaining chip like a pre-approval from another provider, even better.

Even just a decimal difference in the percentage of your interest rate can result in hundreds of dollars of savings over time, so don’t skip on it if you want to gain significant savings from your loan.

7. Consider the Total Cost of Car Ownership

Don’t just look at the car’s price tag or the total cost in the contract. Look into the other costs as well, including fuel, insurance, maintenance, and potential repairs.

On average, people spend $220 to $500 on car maintenance and repairs each year. The price tends to increase the longer you own the car. It’ll also skew upwards if you make any car replacements.

Be sure to factor these costs in when picking a car. Also, consider future upgrades and the depreciation costs of the car. This way, you can get a complete picture of your car’s total worth and gauge more reliably if it makes a suitable investment.

8. Avail Government Grants and Discounts

Aussies who own electric vehicles have financial privileges that they can avail of, such as government grants like rebates. 

Take advantage of this by looking at what your local council offers and applying for them. You can save thousands of dollars through tax exemptions or home charger installation write-offs.

Some car dealerships may also offer discounted rates for their cars, regardless of whether they’re a gas car or an electric car. Observe the prices and take your shot when the deal looks hot. Timing your purchase can also save you a lot of money.  

9. Shorten The Loan Duration

Lastly, prioritise getting into a car purchasing agreement with a short loan duration. The shorter the loan duration, the less interest fees you’ll have to pay.

In turn, this can lower the total cost of car ownership. That said, be sure that you can cover the monthly expenses, as they’ll naturally require higher prepayments if you have a short-term loan.

We hope this article has helped you!

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