Your First Car Loan: What You Need to Know

Buying your first car is exciting. Financing your first car? That can feel a bit daunting. But it doesn't have to be complicated.

Here's everything you need to know about getting your first car loan.

How Car Loans Work (The Basics)

A car loan is pretty simple:

1. You borrow money to buy a car
2. You pay it back over time (usually 1-7 years) with interest
3. Once it's paid off, the car is fully yours

Each month (or fortnight/week), you make a repayment that covers part of the loan amount (principal) plus interest. The interest rate you get depends on factors like your credit history, income, and the car you're buying.

What You'll Need to Apply

To apply for a car loan, you'll typically need:

Identification

• Driver's licence
• Passport (if available)
• Medicare card

Proof of Income

• Recent payslips (usually 2-3)
• Employment letter (sometimes)
• Bank statements showing salary deposits

Financial Information

• Bank statements (last 90 days)
• Details of any existing debts
• Living expenses estimate

Vehicle Details

• Make, model, year of the car
• Purchase price
• Seller details (dealer or private)

Can I Get a Loan With No Credit History?

Yes, but it can be trickier. If you're young or have never had credit before, you have what's called a "thin file" — not much credit history for lenders to assess.

Here's what helps:

• Stable employment — shows you can afford repayments
• Good savings habits — consistent saving looks good on your bank statements
• A deposit — reduces the lender's risk
• A co-signer — a parent or family member can guarantee the loan

Some lenders specialise in first-time borrowers, and a good broker knows which ones to approach.

How Much Should You Borrow?

Just because you can borrow a certain amount doesn't mean you should. Consider:

• Your budget — can you comfortably afford the repayments after rent, bills, food, and savings?
• Running costs — fuel, insurance, rego, servicing all add up
• Your plans — do you have other financial goals (travel, moving out, study)?

New Car vs Used Car

For a first car, a quality used car often makes more sense:

• Lower purchase price — borrow less, pay less interest
• Already depreciated — new cars lose value fastest in the first few years
• Lower insurance — generally cheaper to insure

That said, new cars come with warranties and the latest safety features. It's a personal choice based on your budget and priorities.

Tips for First-Time Borrowers

1. Get pre-approved first — know what you can spend before you shop
2. Don't max out your budget — leave room for unexpected costs
3. Compare options — don't just take dealer finance without checking alternatives
4. Read the contract — understand the interest rate, fees, and what happens if you miss a payment
5. Set up automatic payments — never miss a repayment and hurt your credit score

What Happens If I Miss a Payment?

Missing payments hurts your credit score and can lead to:

• Late fees
• Default notices
• Difficulty getting credit in the future
• In extreme cases, repossession of the car

If you're struggling, contact your lender early. Most will work with you to find a solution before things get serious.

The Bottom Line

Your first car loan is a big step, but it doesn't have to be scary. Borrow sensibly, understand the terms, and make your repayments on time — you'll build good credit and be set up well for the future.

Got questions about your first car loan? Get in touch — we're happy to walk you through it with no pressure and no jargon.

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