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Financing Your First Car

Thinking about how you're 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 are the running costs you will need to budget for? A medium sized car would be about $200 per week* in fuel, repairs and servicing.
•    What is the gap between your savings and the cost of getting the car on the road? Check out Costs to budget for when buying a car if you're not sure.
•    If you borrowed the gap, what would the finance repayments be? Use our Car Loan Repayment Calculator to find out.
Then do a budget to see how these costs fit in with your other expenses.
If you have your dream car in mind and know how much you want to spend, answering these questions could still give you a better idea what financial commitment you're taking on.

TIP: You won't make return on the money you invest in buying a car. Think about your other priorities and consider how much of your money you want to tie up in an asset that drops in value, rather than increases.

When should I organise the car finance?
If you're ready to buy a car and are organising car finance for the first time, consider getting Conditional Approval before you start kicking tyres. That way you'll know in advance if there are going to be any problems with your finance rather than getting caught out after you've put down a deposit.
Conditional Approval usually lasts for 30 days so you have some time to shop around for the right car.

If you're not ready to apply for finance but are shopping around for a car, make sure you:
•    Are aware of typical loan interest rates,
•    Know what you can afford in repayments, and
•    Have a good sense of your likelihood of being approved for finance

What finance options are available?
You're probably considering a car loan or a personal loan. They are very similar products, however a car loan uses the car you're buying as security for the loan. This typically reduces the annual interest rate charged, however there are usually some conditions for the car to be eligible - for example, it may have to be above a certain value or below a certain age.
Read Car Finance Options: An Overview for more detail about car loans, as well as other options like leasing.

Getting a longer loan term can be a way to reduce the regular repayments you have to make to service the loan, however make sure you look into any penalties that might exist for paying out the loan early.

*Based on RACV's 2007 Vehicle Operating Costs for medium cars (Honda Euro Accord, Mazda 6, Toyota Camry)