Smart ways to finance a car

Apart from a house, a car is one of the most expensive things you can buy, so figuring out financing is one of the first steps towards buying a car.

If you’re in the market for a new car, don’t wait until you’re signing the paperwork before thinking about how you’re going to pay for it.

Here are seven smart ways to finance your next car.

1. Review your credit score before setting foot in the dealership

Paying off your debts and making payments on time can improve your credit score over time, and a good credit score can lower the amount of interest you’ll pay on your car loan.

Your credit score can also impact the type of car loan you can get. Having a good credit score can make you eligible for some of the upper-tier car loans and a higher loan amount.

2. Keep the loan term as short as you can afford

A shorter loan term means higher repayments - which is exactly what you want.

In general, the longer it takes you to repay a car loan, the more interest you’ll pay. It can be tempting to stretch out your loan repayments over a longer period of time, effectively making your monthly repayments cheaper, but you’re also paying more in interest for a depreciating asset.

3. Put the biggest deposit down you can afford

Avoid owing more than what the car is worth by putting down the biggest car loan deposit you can afford - particularly if it’s a new car as it will depreciate quicker than a used vehicle.

Typically, an initial payment of 20% or more of the purchase price is a good place to start. So if you’re buying a $25,000 car, a 20% deposit is $5,000.

4. Pay taxes/fees/'extras' in cash

There are many miscellaneous costs that come with a car purchase, like registration fees, sales tax, documentation fees, and any extras you want like extended warranties.

If you roll these fees into your financing, you’re increasing your loan amount but not the value of the car securing the loan.

Not sure whether to pay for your car with a loan or cash? Read our guide on financing a car vs paying for cash.

5. Compare dealer finance against lender rates

In the excitement of buying a new car, some people forget one small (but very important!) detail: how exactly to pay for that set of new wheels.

Unless you have a spare $20k sitting in your back pocket, there are two options: dealer finance or a car loan from a lender.

Dealer finance is when the dealer contacts their bank or lender of choice and helps to arrange a loan for the car. They make all the arrangements while you do very little. Sounds ideal!

The other option is when you (the car buyer) applies for a car loan from a lender like loans.com.au. You arrange the details of the loan yourself, and use the money to purchase the car from the dealer.

Dealer finance may seem like a no-brainer because it’s more convenient, but dealers may markup the monthly repayment to pocket a profit. Some dealers offer their own interest rates which can be a markup on the bank’s rates.

See how much your monthly car loan repayments with us could be by using our car loan repayment calculator.

6. Speak to a lender before you walk into a dealership

By speaking to a lender, your assets, liabilities and credit rating would be assessed to find out if you’re qualified to get a car loan for a specified amount. Walking into a dealership with pre-approval can speed up the buying process as both parties know you have a fixed limit, so there’s less chance of getting a dodgy deal.

Not sure if you should only buy from a car dealership? Read our guide private sellers vs car dealerships. 

7. Consider a green car

If you have a qualifying green car, you’ll be eligible for a 0.7% discount on your car loan interest rate. Learn more about our green car loan.

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