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Buying your first car is an exciting step in any person’s life, but sorting the financing can be daunting, especially if you're new to borrowing money. It’s important to know what to do when it comes time to apply for your first car loan, which is where Savvy can help you out.
Learn a range of top tips to help you navigate the process and increase your chances of getting approved for your first car loan. Whether you're a student, young professional or anyone else, find out all you need to know with us today!
Think carefully about your budget
Before applying for your first car loan, it's crucial to assess your financial situation and determine how much you can realistically afford to borrow and repay. Consider factors such as your income, expenses and existing debts to establish a budget for your car purchase.
Remember to account for additional costs such as insurance, maintenance and petrol expenses. In thinking carefully about your budget upfront, you can avoid taking on more debt than you can comfortably manage and ensure that your car loan payments fit within your financial means.
Additionally, asking for more than you can afford is a surefire way to have your application turned down, so it pays to only try to borrow what you can manage.
Choose the right loan term
It's also important to choose the right loan term that aligns with your financial goals and budget. The loan term refers to the length of time over which you'll repay the loan, typically ranging from one to seven years.
A shorter loan term will result in higher monthly payments but lower overall interest costs, while a longer loan term will lead to lower monthly payments but higher overall interest costs. Additionally, you’ll have the option to pay your instalments on a weekly, fortnightly or monthly basis, which you can pick to align with your income.
It’s crucial to choose a term that allows you to comfortably afford your payments while minimising the total interest paid over the life of the loan, as this will help you show your lender that you can manage your car loan’s repayments.
Make a deposit if possible
Saving up for a deposit can significantly improve your chances of getting approved for a car loan, especially if you have limited credit history or a lower income. A deposit demonstrates to lenders that you're financially responsible and capable of saving money, which can make you a more attractive candidate for a loan.
Additionally, a larger deposit will lower the amount you need to borrow, reducing the risk for the lender and saving you money in the process. According to Bill Tsouvalas, Managing Director of Savvy:
“If possible, you should always aim to save up for a deposit before applying for your first car loan, as this will increase your chances of approval.
“Lenders always look for borrowers who they can trust to keep up with their repayments throughout their term and evidence of significant savings is a clear sign of trustworthiness.”
Know your car needs
Although not strictly related to your car loan, it's equally important to have a clear understanding of your car needs and preferences. Consider factors such as the type of car you need (such as a sedan, SUV or hatchback), its intended use (such as commuting, family trips or off-roading) and any specific technological or safety features you require.
Part of this comes from deciding whether to buy a new or used car. Used cars are more budget-friendly but may come with more question marks about their repair history (particularly if you’re buying from a private seller). On the other hand, new cars tend to be much more costly and depreciate rapidly but can offer the latest and greatest when it comes to their tech.
Knowing your car needs upfront will help you narrow down your options and focus on finding a vehicle that meets your criteria. This can streamline the car-buying process.
Compare your options on the market
Before committing to a car loan with a particular lender, it's essential to shop around and compare your options on the market. Research different lenders, including banks, credit unions and online lenders, to find the best rates and terms available.
Consider factors such as interest rates, available loan terms, fees and eligibility criteria when evaluating potential lenders. By comparing your options thoroughly, you can maximise your chances of getting the most competitive deal on your first car loan.
Double-check that you meet the eligibility criteria
Another must-do is reviewing the eligibility criteria set by the lender to ensure that you meet all the requirements. Although they vary depending on the lender, these criteria will include age restrictions, minimum income thresholds and eligible sources of income, employment status and residency requirements.
Make sure to gather all the necessary documentation, such as proof of identity, income and address, to support your application. Double-checking the criteria before applying can help you avoid unnecessary delays or rejections and increase your chances of getting approved for your car loan.
Get pre-approved for your car loan
Obtaining pre-approval for your car loan before you start shopping for a vehicle can give you a significant advantage in the car-buying process. Pre-approval involves submitting a loan application to a lender and receiving conditional approval for a specific loan amount and interest rate.
Having a pre-approved loan in hand when you visit car dealerships or private sellers puts you in a stronger negotiating position and gives you greater confidence when making purchase decisions. It also allows you to focus on finding the right car without worrying about financing issues.
Keep in mind that pre-approval isn’t a guarantee of final approval, but it can significantly streamline the car buying process and increase your chances of getting your car loan approved when it comes time for formal approval.
Work towards building up your credit
Your credit score plays a significant role in determining whether you'll be approved for a car loan and what interest rate you'll qualify for. If you have limited credit history or a less-than-perfect score, it's essential to work towards improving your credit before applying for a car loan.
Start by checking your credit report for any errors or discrepancies and addressing them promptly. From there, focus on making timely payments on existing debts and paying them down as much as you can, such as keeping your credit card balances and limits low.
Avoid opening new credit accounts or taking on additional debt in the months leading up to your car loan application wherever possible. Taking proactive steps to improve your credit can increase your chances of approval.
However, it’s important to note that there are options out there for those whose credit isn’t the best. Many online lenders specialise in offering car loans to borrowers with bad credit, so if you find yourself in this position, it’s worth checking what your options are.
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Bill TsouvalasFact checked
This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for car loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
