Buying a car

Next to buying a house, buying a car is one of the biggest financial decisions you will make.

For younger people, it can be the first major purchase you will make and possibly the first time you may ever seek a loan.

The prospect of owning a car can be both very exciting, but also a little daunting. This guide takes you through the different aspects of buying a car, to make the whole process more simple and straightforward so you can feel confident and in control.

Now get ready. Before you know it, you will be driving away in your own set of wheels!

THINGS TO THINK ABOUT

The Australian car market is very competitive, offering a wide range of brands, models and choices.
With all the different information and options available, it can be hard to know what to choose and where to start. It often helps to ask yourself some key questions to steer yourself in the right direction.

Here are some things to think about:

• What is your purpose for buying a car? (e. g. The solo daily commute or for the family) 
• Are you looking for new or used?
• Would you like an automatic or manual model?
• Are you hoping for something powerful or would you rather it be fuel-efficient?
• Do you need to tow anything or require a large boot space?
• How many seats will you need? (Will it grow with your needs?)
• Is there a particular make and model you have in mind? (if yes, have you received feedback from people who have this type of car or checked some reviews online?)

If you are thinking of buying a used car, you will also be looking at some additional things, like how many km’s the car has clocked, how much rego is left and what issues the car may have had or has.

FACT: There are some restrictions on who may drive certain high-performance vehicles. The restrictions normally apply to new drivers and cover various high-powered vehicles. Check with the licensing body in your State or Territory before you buy a car like this.

KNOW THE COSTS INVOLVED

Before you go out looking, it helps to set a budget so you know exactly how much you can afford to spend on a car.

The purchase price will be the largest up-front cost associated with buying a car, but you also need to consider some of the other costs involved which we have listed below.

Decide whether you will be using savings or if you will need to borrow the money. When you work out how much you can afford to spend, do not spend more than you have allocated to buying the car, as this is just the start of your expenses.

Registration fees – It is a requirement that all cars in Australia are registered. If you are buying a new car, the dealer will organise for the car to be registered and will often include the registration fee in the ‘drive away’ price. If you are buying a car privately, check that the registration is still current.

Beware of buying an unregistered car because there are extra safety checks and costs involved in getting it re-registered.

Remember that registration is a yearly cost, so you will need to budget for it.

CTP Insurance – You will need Compulsory Third Party (CTP) Insurance to get your car registered. This insurance provides cover against claims of compensation if you injure someone in a car accident. However, it does not cover you for damage you do to another person’s property or car.

In most States and Territories, CTP insurance is automatically included with your registration and provided by only one insurer. However, in New South Wales and Queensland, there are a number of companies who offer this type of insurance. It pays to shop around because the premium can vary significantly.

Car Insurance – It is sensible to protect this important asset by insuring it. In addition to Comprehensive Third Party (CTP) insurance (which you need to have in order to register your car), there are other types of Motor Vehicle Insurance. These provide additional protection in the instance of your car causing damage to either another person’s vehicle or property or depending on your level of cover, if your car is damaged also. 

These options will be discussed further later in this guide.

Stamp Duty – This can also be known as Motor Vehicle Duty or Registration Duty and is payable on new cars when registered for the first time or used cars when transferring registration from one person to another.While the amount and the way it is calculated vary, it is usually calculated as a percentage of how much the vehicle is worth or what you paid for it.

CONSIDERING THE BEST FIT FOR YOU

Having thought about what you want in a car and understanding all the costs that will be involved, it is time to look at what options are best for you and think about what you can afford when buying your car.

Let’s take a closer look at some of these options:

Buying a new car

Driving a brand new, shiny car out of the showroom is a common dream. New cars have all the latest and greatest features.

Some new cars will offer a warranty as part of the deal or at an extra cost (typically from 3-5 years), so if something goes wrong with the car, you will be covered by the warranty.

Most new cars will be more fuel efficient and in general, newer cars are safer and more reliable than older cars because of technological improvements and tighter regulations set by Government.

When you buy a new car, you know it has never had any mechanical issues or been in any accidents, also the odometer is at zero or very low meaning this car should have a long life ahead of it.

However, the disadvantage of buying a new car is that it depreciates significantly over the first few years. This is generally not a problem if you do not intend to sell it anytime soon. However, if you plan to change your car within a few years, you could find that its value has dropped 30% or more from what you paid.

FACT: When purchasing through a dealership, many States and Territories have a statutory cooling off period. This means, if you buy a car from a dealer and the dealer arranges finance; you can change your mind and cancel the contract within a limited period, usually by the end of the next day. Check with your local Consumer Protection Agencies about the cooling off period in your State or Territory.

Buying a used car

As exciting as a new car might be, in reality, many of us opt to buy a used car because it makes more financial sense.

You can save thousands of dollars by buying a near new, used car. Sometimes the manufacturer’s original warranty still applies (provided the car is within the warranty timeframe).

Of course, the disadvantage to buying a used car is that you may inadvertently be buying someone else’s “lemon”, so it is important to have it checked thoroughly by someone mechanically minded.

Safety issues

Does your car have the safety features you are after such as airbags, anti-lock braking systems and reverse cameras? You should be considering this as part of your buying decision? You will need to think about how these features will affect the make and model of the car you choose and whether you buy a new or used car.

All cars sold in Australia must meet certain safety regulations. Some car manufacturers put a greater emphasis on safety features.

The environment

Now that you are in the market for a car, here are some reasons you might want to consider a ‘greener’ option when making your decision.

Cars are one of the leading sources of carbon emissions in our environment sending carbon monoxide, nitrogen oxides and hydrocarbons into the atmosphere. To help minimise the air pollution, there have been some more efficient options introduced into the market.

Electric cars- These cars are relatively new to Australia. They have an electric engine that uses energy from recharging batteries to power it. When this car requires charging, it will need to be plugged into an electric source.

There are no emissions out of the exhaust pipe, however, when the car needs charging this will create some emissions (unless being charged from electricity coming from a renewable source).

Hybrid cars – Being part electric motor and part petrol, makes the hybrid car kinder on the environment (using up to 50% less emissions) than standard petrol vehicles. Unlike electric cars, there is no need to plug in and charge a hybrid car, it charges while you drive.

For both of these car options, the upfront purchase may be higher than the standard model, but will save you in fuel and running costs over time. These vehicles use less fuel and burn less oil, emitting little or no carbon dioxide into the air, achieving the least possible carbon footprint.

TIP: Buying a car does not have to be all logical of course. You should also like the car, and your likes are not always based on entirely practical considerations. Nevertheless, remember, you should not base your decision only on emotional factors either. If you do, you may end up with a car that does not serve your needs or suit your lifestyle.

WHERE TO BUY

If you have decided on a new car, the best place to start is at your local new car dealership that sells the make of your choice. If you have not decided what you are after specifically, then start at any and go from there.

However, if a used car is for you, there are four basic ways to go when it comes to where to buy.

Private Sale

You can generally save a significant amount of money if you buy a car privately.

A popular way to find what used cars are available for private sale is via various websites online. Shopping online is a great way to check the car has all your must haves before you even need to leave your home.

If you find a car you like, it is your responsibility to check that the car is not encumbered (meaning the car is carrying a debt), stolen or de-registered. If you do not do this, the car can be repossessed because of the previous owner’s unpaid debts.

At times, it can be inconvenient to buy a car privately if you have to travel long distances to inspect the car.

Used Car Dealer

All licensed dealers are required to abide by a set of standards and must provide guarantee of title and a used car warranty. Specific warranty conditions vary between the States and Territories, but a 3-month/5000km warranty is typical.

Another benefit of buying from a licensed dealer is the ability to trade-in your existing car as part of the deal.
You may find it convenient to visit a reputable dealership with a good selection of stock to choose from so you can really compare your options.

Dealers offer clean, well-presented cars so you will drive off in a shiny car, even if it is not brand new.
Generally, you will pay more for a car bought through a car dealer than from a private sale.
Car dealers can sometimes be forceful salespeople which may make you feel uncomfortable or influenced to buy a car that is not quite right for your needs.

Auction

Cars bought at auction are normally at a very favourable price, however, they can go very quickly, so you are required to make hasty decisions.

The auctioneer can be hard to understand and you may feel intimidated. You may be bidding against used car dealers who are familiar with the process and who will usually be quick to make the best purchases on auction day.

Cars are sold “as is”, which means you usually cannot test-drive the car before you buy it, but you may be able to rely on a mechanical inspection.

Car Broker

Independent car brokers aim to help car buyers through the process of buying a car. You explain what you want and the broker will find a car to suit your needs and then negotiate the best price on your behalf.
The broker can also organise a trade-in for your existing car.

The car broker normally charges a fee for the service, but this is normally only charged when a car is purchased.

Each of these options have their positives and negatives, using this information you can decide on which option suits you best.

FINANCIAL OPTIONS

There are several different ways to fund the purchase of your new or used car, these include:

Savings – by budgeting steadily for a period, you can build up your savings so that you can buy a car outright.

Personal loan – you can take out a personal loan to cover all or part of the costs. You make regular payments for a specified period of time and at the end of the loan period, you own the car. There is more information about borrowing money to buy a car in the next section.

Dealer finance – this is when you borrow money organised by the car dealer, although it is usually provided by an outside financial institution.

Leasing – an arrangement where the financier buys the car of your choice and you make regular payments for a specified period. There are commonly two types of leases:

• Operational leases are when you pay the lease payments similar to rent. At the end of the lease, there is no obligation or right to buy the car.
• Financial leases are when you pay the lease payments and agree to pay a residual or balloon payment at the end of the lease. You also have a right to buy the car at the agreed residual price.

Borrowing

Once you have decided on a car, and you know the total cost, you may not have the cash or savings to pay for it. One of the best ways to achieve your goal is to get a personal loan or a specific car loan.

The loan can be either secured or unsecured. ‘Secured’ simply means the car is mortgaged as security for repayment of the loan. If you fall behind in the repayments, the lender has the right to take possession and sell the car to recover their money. A secured loan is generally a little cheaper than an unsecured loan.

It can be helpful to have your loan approved before you go looking for a car. This means you know exactly how much you have to spend and you can make a purchase when you wish.

Choosing a lender

There are many different car loan options and many different lenders to choose from. Some lenders will make great promises, but the reality can be quite different. No matter where you go, it is important to compare the features of the loan and know what it is going to cost in terms of interest rates and other fees and charges.

Some basic questions for your lender:

• What loan options are available? (For example, secured and unsecured)
•  What are the interest rates?
• What are the fees and charges?
• What will my repayments be?
• How long is the loan term?
• Can I make extra payments?
• Is there any penalty for paying out the loan early?
• Are there any loan conditions to be aware of?

Australian Mutual Bank is a good place to start when looking for a car loan. Being a Mutual Bank means we offer similar products to other lenders, but then deliver other important benefits too. With no external shareholders demanding dividends, we can lend money on very reasonable terms with competitive rates and low or no account-keeping fees.

CHECKLIST – Completing your loan application

When applying for a loan, make sure you have the following documents at hand:

• Two recent pay slips (or your last two tax returns if you are self-employed)
• Rates notice or 6 months of your rental ledger
• Six months’ worth of statements on all loans, credit cards and store cards
• Six months’ worth of statements on all of your accounts.

Comparison Rate

In the past, calculating the real cost of a loan has been complicated and difficult. The interest rate is only one factor in the overall cost of the loan – fees and charges must be taken into account.

Comparison rates were introduced so that consumers could easily compare loans from different lenders. The comparison rate takes into account the interest rate, and ascertainable fees and charges such as application fees, monthly or annual charges and legal costs associated with the loan in an attempt to express some of the costs of a loan into a single rate.

Any advertisement that includes a loan product interest rate, must also include the comparison rate. For example, a loan may be advertised with an interest rate of 6.5% p.a. and the comparison rate 9.6% p.a. when all the other fees and charges are considered.

PROTECTING YOUR INVESTMENT

Once you have purchased your car, there are a few things you should do to protect your investment.

Insurance

Having car Insurance protects you against financial loss due to your car damaging another person’s car or property, or with higher coverage can also protect your car against damage by theft, fire, weather or accidents.

There are many different types of insurance available to suit all needs.

Third Party Property - This is relatively inexpensive insurance as it only provides cover for damage caused to another person’s vehicle or property. It does not include cover for any damage to your vehicle.

Third Party Property, Fire & Theft - Provides the same cover as Third Party Property, plus additional cover if your vehicle is stolen or burnt.

Comprehensive – This insurance provides the most complete cover for your vehicle, but is the most expensive of all insurance options. It provides cover for damage caused to your vehicle in addition, any damage you cause to other vehicles or property during an accident, even if the accident was your fault. Comprehensive insurance will also cover you against theft, fire and weather.

Driving a car without comprehensive car insurance is a great financial risk. If you don’t have Comprehensive insurance and you are involved in an accident and your car is written off, your asset previously worth thousands could be worth zero.

Policy inclusions vary from one insurer to another, so it is worthwhile to compare prices because there can be large differences between the premiums.

NOTE: If you take out a secured loan from a financial institution to purchase your car you will be required to get comprehensive insurance and list their name on the papers as an interested party.

Maintaining your car

To keep your car running at its optimal level, have it serviced regularly. Do not skip servicing to save money because it will almost certainly cost you more in the long run. Regular servicing will ensure that small problems are fixed before they become major, and there is the issue of safety to consider. Regular servicing is also a record to show future buyers.

The value of your car will also be maintained if you look after your car. Keeping it clean and tidy will help to maintain the paintwork and the quality of the interior. A little effort will pay off when the time comes to sell your car.

STEPS TO TAKE WHEN YOU HAVE FOUND A CAR

Step 1: Test drive

Taking a car for a test drive before you buy is an important first step in the buying process. You may have your heart set on a particular model, but if you do not feel comfortable driving it, then you may need to reconsider your choice.

New cars – You will be driving a demonstration (or “demo”) model. The car you take home should be similar to the demo model, so check it for suitability and consider how you feel driving it. Make sure that the demo model you test drive is the same as the model you are going to buy. If the demo has different features, transmission or engine size to the model you order, you could be disappointed.

Used cars – The test drive process is even more important because you also need to consider if the car is mechanically sound. It is a good idea to ask the existing owner questions such as, “Why are you selling the car?” and “Has the car been in an accident?”. However, always consider the condition of the car and the service records against what you are being told.

TIP: No matter where you buy the car from, it pays to double check everything you are told. For example, check that the compliance plate and any paperwork confirm the year of manufacture, otherwise the value of the car could be significantly different. (The compliance plate is a small metal plate fitted under the bonnet.)

For used cars, whether sold privately or through a dealer, look through maintenance and service records.

In addition, you should inspect the car carefully:

• Check the tyres (bald tyres mean an additional, immediate expense).
• Check the body for dents and rust.
• Check that the logbook shows regular and proper servicing and be wary of a car without a logbook.

Here are some general test driving tips:

• Bring another person with you to get their feedback.
• If you need to carry something specific in the car, such as a pram or sporting equipment, make sure it fits. The best way to do this is to take it with you to the test drive, but otherwise use a tape measure.
• Don’t just drive around the block. Make sure you spend at least 15 minutes getting used to the car and try it in different road conditions and at different speeds.
• Make sure you try parking the car. If it is difficult to park in tight spots or does not have good visibility, this may turn out to be an annoying and constant problem.
• Ask about servicing the vehicle – how often and how much it typically costs – and get a quote to insure the car. These running costs vary between make and model, and could affect your final decision.

TIP: take control, do your research, and make sure you know what the car you are buying is really worth. There are many different sources that can guide you on used car prices and they can be found online.

Step 2: Important checks & inspections

Some important checks and inspections should be carried out on any used car you are seriously considering.

Mechanical inspection – Unless you are mechanically competent or have a friend who is, then it is best to organise an inspection. For a small fee, they will complete a full mechanical inspection and issue a report. Some car dealers or auction houses may have already had a report completed on the car, and you just need to check that the report is recent.

These reports are very thorough, which means that they will probably find a fault with every car. You just need to decide if the fault is major or minor, if it can be repaired and whether or not you are still prepared to buy the car.

Encumbered vehicle check – When purchasing a used car, it is your responsibility to check if the car is encumbered. This simply means checking if there is an unpaid debt on the vehicle so that the registered owner may not own the car outright. If you buy an encumbered car, it could be repossessed even though the debt is not yours.

You can check on any encumbrances, including whether the car has been reported stolen, has previously been written off or deregistered, by checking with the transport authority in your State or Territory. In order for them to complete the check, you will need to provide the registration number with the VIN/chassis and engine numbers. For a small fee, the authority will give you a certificate confirming your enquiry that gives you legal protection against repossession.

Step 3: Negotiating

Now that you have found the right car and undertaken all the important checks and inspections, it is time to start negotiating. While the seller may state a price, you can make a lower offer. Often the seller will be willing to accept a lower price.

Here are some tips to keep in mind when negotiating:

• It is best to be honest, friendly and firm. Stay positive and do not be persuaded or hurried. If it does not feel right, walk away.
• Be upfront about the price. If it is out of your price range or you think it is too expensive compared to similar models you have seen, say so. The seller may drop their asking price when provided with these reasons.
• Use the inspection report to negotiate a discount. If the report shows that you will need to pay for certain repairs, you should be able to negotiate a lower price.
• Leave your name and phone number. It shows you are genuinely interested and gives the seller the chance to phone you later if they change their mind about accepting a lower price.

TIP: If you are borrowing money to buy a car, it is a good idea to have your finance in order before
you start negotiating. That way you will know how much you can afford to spend.

Step 4: Doing the deal

Once you have negotiated a price, if you buy from a dealer you will be asked to sign a contract or order form. This is a legally binding document, so ensure that you read and understand it fully before you sign.

Ensure that the order form is completed before you sign it and that all the costs (including stamp duty, dealer charges, optional extras, etc.) are clearly stated.

If it is a new car, Insist that a delivery date is specified otherwise it could take months for your new car to arrive.

Leaving a deposit
In most cases, whether you are buying the car privately or from a dealer, you will be required to leave a deposit when you have agreed to buy the car. Be cautious when handing over money and leave the minimum amount required, which should never be more than 10%.

Ideally, all the checks and inspections (for a used car) will be completed before you leave a deposit. If it’s not possible to organise these checks in time and you want to secure the car, ensure that the deposit is refundable if the inspections are not satisfactory.

Ensure that you get a signed and dated receipt that outlines the agreement you’ve reached with the seller. Now that you have paid a deposit, you are entitled to insist that the car is not driven.

The Receipt should include:

• Deposit amount of $ received of total amount of $ (specify the amounts) on car (make, model and rego number)
• Owned by Seller’s name, address and phone number.
• Add what has been agreed (e. g. Your name has first option to buy this car subject to mechanical inspection and encumbrance check)
• Include the date along with both your signature and their signature.

Step 5: Taking delivery

When your car is ready and you have paid the full amount, you can take delivery of your car. Before
you drive away, you should inspect the car thoroughly. If possible, you should do this during daylight
hours in fine weather.

For all cars

• Have your car insurance (not just CTP) organised before you drive the car.
• Check that the seller gives you all keys, owner’s manual, logbook and any necessary security
  codes for the car.
• Check that the spare wheel and jack are in place.

For new cars

• Check the month and year of manufacture on the car match the paperwork, and are what you expected.
• Check for any defects in the paint and trim and ensure that all the windows, lights, locks and other mechanisms are working properly.

For used cars

• Notify the transport authority in your State or Territory that you are the new owner of the car. You will need to complete the transfer papers.

LET US HELP YOU

At Australian Mutual Bank we can give you lots of practical advice when it comes to buying your own car.

If you want to save for a car, we can help you with budgeting and saving.

We also have a range of loans; and can help you choose the right loan for your needs and ensure that your repayments are manageable.

Insurance is an important part of owning a car and Australian Mutual Bank can arrange insurance for you through our insurance partners.

Please contact one of our friendly staff on 13 61 91.