Financing your first car

Thinking about how you are going to pay for your first car?

How much should I spend?

Before deciding how much to spend on your first car, decide what you can afford. Answering these questions is a good start.

• What operating expenses will you need to budget for? A mid-size car will cost about $200 a week* for fuel, repairs and maintenance.

• What is the gap between your savings and the cost of driving the car? If you're unsure, see Costs in your budget when buying a car.

• If you were to take the gap, what would the financial payoff be? Use our car loan repayment calculator to find out.

Then create a budget to see how these costs compare to your other expenses.

If you have your dream car in mind and know how much you want to spend, the answers to these questions can still give you a better idea of ​​what kind of financial commitment you are making.

TIP: You will not get back the money invested in buying a car. Think about your other priorities and consider how much of your money you want to invest in an asset that is declining in value rather than rising.

When should I arrange auto financing?

If you're ready to buy a car and are arranging auto financing for the first time, consider getting a conditional approval before kicking your tires. In this way, you will know in advance if there will be any problems with your finances, and will not fall into the trap after making a deposit.

Conditional approval usually lasts 30 days, so you have time to look at the right car.

If you are not ready to apply for funding but are looking for a car, make sure you:

• Know the typical interest rates on loans,

• Know what you can afford to repay, and

• Have a good idea of ​​the likelihood of being approved for funding

What financing options are available?

You are probably considering a car loan or a personal loan. These are very similar products, however, a car loan uses the car you buy as collateral for the loan. This usually lowers the annual interest rate, however, there are usually some conditions for a car to be eligible - for example, it can be above a certain value or under a certain age.

Read Car Financing Options: An Overview to learn more about car loans, as well as other options such as leasing.

Getting a longer term loan can be a way to cut down on the regular repayments you have to make to service your loan, but make sure you research any penalties you may have for paying off your loan early.

*Based on 2007 RACV operating costs for midsize vehicles (Honda Euro Accord, Mazda 6, Toyota Camry).