If you’re a student or young person looking to get something a bit more than a $3,000 20 year old deathtrap, car financing could be a tempting option. However, a car loan on a new car can be a big burden to carry, especially when you’re young and not earning much. There’s a few considerations to make before diving in head-first.
Chances are your income is rather limited if you’re in high school or at uni. Unfortunately, the 20 hours a week stacking shelves at Woolies might not cut it when a lender looks at your application. Of course, this depends on the amount you’re asking to borrow, but most lenders look for several key things:
A steady, full-time or full-time equivalent wage: Lenders will often look for steady employment for over a year, as well as assess your income.
A track record of paying off debt and other expenses: Lenders will look into your credit report, which if you’re a student, is probably a pretty short one. Paying payday loan places in Madisonville off your postpaid phone plan, electricity and internet on time can go a long way in building your credit score. Don’t let housemates cause you to miss your bills.
e. paying more than 30% of your income towards rent, which if you’re a student is a distinct possibility. They’ll also look at ‘frivolous’ purchases such as Uber Eats, alcohol, how much you spend on going out and so on.
So, if you’ve weighed up the costs and a car loan is looking increasingly appealing and affordable, cleaning up your bank statement can go a long way in making yourself more attractive to a lender.
Beware expensive loans
If you’ve been knocked back for a secured, low-interest loan, it’s tempting to go for other types of loans. The next major auto loan type is an unsecured loan, which doesn’t use the car as security if you fail to make payments. As a consequence, these types of loans can attract significantly higher interest rates. Another type of expensive loan can include bad/no credit car loans, which often attract a higher interest rate still. Do your due diligence here, and make sure you can afford the loan!
Costs of running a car
The total expenses don’t stop at the car loan. If you’re having to subsist on a diet of noodles, and share a house with five others, a car can be a big blow to the budget.
The loan is just part of the equation. You may have seen the above monthly repayments around $500-$600 above for a $30,000 loan across a five year term and thought, Oh yeah no worries’, but there’s plenty more to consider.
1. Insurance cost
One of the biggest expenses of car ownership when you’re young is insurance, often above the $1,000 per year mark just for any old banger for comprehensive insurance. You can save some money by putting your parents on the insurance, too, but read the policy product disclosure statement (PDS) to make sure this doesn’t void the insurance. You can also save money by just getting Third Party insurance, but if you’ve got a shiny new car, your own car isn’t going to be covered if you ram it into a lightpole, for example.
2. Registration cost
Second is the registration (CTP and registration itself), and this varies by state, but is mostly going to be above $600 per year for a small, 4-cylinder car. Many states also make you do a yearly inspection and pass a roadworthy to be registered, which is an additional cost as well.