The Beginner's Guide to Securing Your First Car Loan (2024)

Meet Sam

It was a sunny day in Brisbane, Australia in 2024. Sam had recently started his first full-time job after completing his degree. He was excited to be making his own money and finally plan to buy his first car. Sam had used public transport all through Uni and was ready for some independence.

As he walked out of work that day, he noticed just how many different cars were on the road. He knew that a car would be a significant investment, and he needed to make sure he made the right choice.

Sam's priority was to find a reliable car. Second and the most crucial was to secure a loan. He had an idea of his budget, since he started earning, so the car loan needed to fit within his budget. He knew that he had to be careful and educate himself about the car loan process and not make a rash decision if he fell in love with a car.

Sam researched car loans and found several finance options that he could apply for. He read articles, watched videos, and talked to friends who had experience buying a car. Several of those friends has suffered poor outcomes in their car buying trials and he didn’t want to suffer the same results.

Building Your Credit File

Sam, having only just started his first job, never had a credit card and only a mobile phone on pre-paid before. So, he didn't have a credit file, which meant he had no credit history. Without a credit history, Sam's car loan application could be rejected, or he could be charged a higher interest rate – or so he thought.

To build his credit file from scratch, Sam applied for a $3,000 credit card from his bank. Sam used his credit card responsibly, making sure he used it for essential purchases and repaid the balance in full each month.

He also made sure that he was saving some of his projected car budget each fortnight, so he knew it was achievable.

Over time, his responsible credit card usage built his credit history, and he gradually gained a good credit score, which should help him secure a car loan with favourable terms.

Practice Good Credit Activity

Sam knew that having good credit is essential to securing a car loan with favourable terms. He understood that his credit score was a measure of his creditworthiness and could affect the interest rate he would get on his loan.

Sam decided to practice good credit activity to improve his credit score, which would help him obtain better loan terms. He made sure to pay his bills and credit card payments on time, avoid maxing out his credit card, and not applying for too many new credit products or applications to finance providers at once or over a short period of time. He had also read that excess gambling and using buy now and pay later offerings would be viewed in a negative way by lenders. Luckily neither of these circ*mstances would have an impact on Sam.

Practicing good credit activity was a good habit to form, and Sam knew it would help him not just with his car loan, but any other credit products he would need in the future.

Know What You Want to Buy

Buying a car is a big decision and it's easy to get caught up in the excitement of your first car. He knew that the first thing he had to do was to find out what kind of car he wanted.

Sam spent time researching the different types of cars that were available, their features, and how much they cost. He considered the size, fuel efficiency, and reliability of the car before making his decision.

Sam narrowed his options to two cars, a compact car, and a SUV, after researching online and asking around. He made a list of pros and cons of each car and then set a budget for each possibility. Taking his savings into consideration of an ultimate purchase price.

Knowing what he wanted to buy and how much he was willing to spend helped Sam figure out how much he needed to borrow. He realized that using a financial calculator on a website did not help him much. He didn't know what interest rate lenders would offer him based on his current circ*mstances. He was becoming frustrated and disappointed that he didn't get a good indication of the fees when he tried online tools and comparison sites, as he quickly learned that the rates were different between the different lenders. He was at the mercy of an artificial intelligence program which only looked at his credit score.

He was at a loss as to what to do after reading reviews and comments about using dealer finance.

A friend suggested that he try a finance broker who had access to multiple lenders like Find That Finance, instead of using his bank or credit union. He checked them out and read their privacy policy to make sure they were legit.

He also discovered that a specialist Asset Finance broker, unlike a dealer finance manager, has serious legal obligations to borrowers in relation to affordability, suitability of a product offering and general conduct to privacy and more according to their Credit Licence

He decided he had nothing to lose so he submitted an online enquiry which only required him to give his name, contact number and email.

He was contacted by a finance broker from Find That Finance who said he would help Sam with his journey to getting his first car loan.

Finance brokers are professionals who work as intermediaries between borrowers and lenders. They help individuals and businesses find loan products not unsuitable to the borrower by accessing multiple lenders and offering personalised services and support throughout the loan process. This is especially helpful for borrowers who are new to the lending market or who do not have a strong credit history.

One of the major advantages of working with a finance broker is that they have access to a wide range of lenders and loan products.

They know the features of each lender’s products and by using internal assessment processes they can zero in on the range of possible products available without making a formal application that would appear on the applicant’s credit file. This means that they can offer borrowers a broader range of options than if they were to approach only one lender directly. This can ultimately save borrowers time and money by helping them find the most competitive interest rates and loan terms for their specific needs.

Finance brokers can also supply personalised help and support throughout the loan process, helping borrowers navigate the often complex and confusing world of lending. They can help borrowers understand the terms and conditions of various loan products, as well as the fees and charges associated with them. This can be especially helpful for inexperienced borrowers who may not fully understand the financial jargon used in loan agreements.

Get a Free Loan Eligibility Assessment

The broker asked Sam questions about his employment details, living arrangement any assets he might own and any money he owed. What he was looking to buy, whether through a dealer or buying privately and how much he needed to borrow. Sam did not realise that you could borrow to buy a used car from a private seller, this would allow him to shop more widely when he was ready to go ahead. The Broker supplied Sam with a Credit Guide and Quote which outlined any fees and charges estimated in any offer to assist with a successfully completed credit contract.

The broker then used this information to do an assessment as to Sam’s eligibility for a car loan. Sam was delighted that this loan eligibility assessment helped find that Sam qualified for a loan, based on his circ*mstances without negatively affecting his credit score and was free. He was also under no obligation to go ahead.

Getting a loan eligibility assessment helped Sam understand how much he could spend on a car, the likely rate and avoid overextending his budget.

Understand How Much You Need to Borrow and What Likely Repayments Will Be

Sam realized that it was not only essential to know how much he needed to borrow to buy his car, but he also needed to know how much, his repayments would be. His broker quickly worked out an estimate based on the expected borrow, term, interest and allowance for fees.

Understanding how much he needed to borrow and what his repayments would be helped Sam to have a better idea of how much he could afford and what finance options he should consider.

Get Pre-approval.

Sam decided to continue. His broker arranged for a pre-approval for a car loan from one of Find That Finance’s many lenders who had a good fit for Sam’s circ*mstances. Pre-approval is an assessment by a lender of an individual's creditworthiness, to show the maximum loan amount they are eligible for.

Getting pre-approval helped Sam shop around for a car with confidence since he already had an idea of how much he could spend. It also helped him negotiate a better deal with car dealers or a private seller and avoid getting approved for more than he needed to borrow.

Sam found the car of his dreams and found that as he was already preapproved the journey to actually settle the loan was easy as his broker had the approval and only needed the vehicle details and any invoicing for the lender to complete the contract. The broker explained the details of the contract and Sam’s obligations as well as providing a disclosure of any commissions or fees the broker would receive, all included in the total borrowed amount, before completion.

Sam was excited about the new car but really pleased that he had his own broker to work, with him to achieve the best possible outcome and was not left to some automated computer to decide his fate.

Make Your Loan Repayments on time.

Sam knew that making his loan repayments on time was crucial to keep his good credit score. Late or missed payments could negatively affect his score and make it harder for him to get credit in the future.

To ensure he made his payments on time, Sam set up a direct debit, so his repayments were automatically deducted from his bank account. He also made sure to keep track of his repayment schedule and make extra repayments when he could.

Making his loan repayments on time helped him build a good credit history and secure better loan rates in the future.

Conclusion

Sam's journey to get his first car loan might seem overwhelming, but with careful planning and research, it is possible to make informed decisions that will save money in the long run. By following these eight tips, Sam was able to secure a car loan that fit within his budget and allowed him to buy the car he wanted. Whether you're in Sam's situation or not, these tips will set you up for success when it comes to buying your first car.

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This is the first video in a series telling the story of Sam's journey to get his first Car Loan.

This is the second video in a series telling the story of Sam's journey to get his first Car Loan.