Steer into the right car loan

From that first drive on the open road, to discovering secret drink holders and basking in that unmistakeable new-car smell, buying a car is an exciting time.

And buyers are in the driver's seat, with CommSec data showing car affordability at a 38-year high on the back of a strong Australian dollar and vigorous price competition.

But despite historically low prices, a car is still a significant investment and many people rely on finance packages to fund their purchase. Here's how to get the best deal you can.

Work out what you can afford

Set a budget. Work out what you can afford to borrow and don't overextend yourself. Be sure to include the cost of registration fees, insurance, roadside assistance, petrol, repairs and maintenance.

Cars are depreciating assets so you could end up owing more than the car is worth.

Know how your loan works

Car loans are personal loans, usually at a fixed interest rate for 12 months to five years.

To get the best rate, see what security you can offer and review your credit record to rectify any outstanding debts before approaching a lender.

Read the fine print, and watch out for traps such a balloon payment at the end or fees for early repayment.

Always shop around It's common for car dealers to offer finance, but they may not have the best terms. Check out banks, credit unions, building societies and specialist lending companies to get the best deal.

Any security you can offer will help secure better loan terms. For new cars, the vehicle itself will often be security.

Time your purchase

The end of the financial year and calendar year are the best times to buy a new car.

If you're buying outside these times, the end of the month can be good as often sales reps are required to hit monthly sales targets and may be more open to negotiation.

Fast facts 

• More than 93,000 new cars were sold in Australia in September (Australian Bureau of Statistics) 
• Car loan interest rates range from 5.84% and 17.75% (CANSTAR database, October)
• Almost $148 million in new cars and $52 million in used cars was financed in August (ABS)