Buying a new car is an exciting decision. You may have been thinking about it for some time, asked your friends for their advice, and now feel comfortable enough to turn your goal into a reality.

Cars are an essential part of people’s daily lives and work commutes, but preparing to purchase a new vehicle is also a major decision and can be overwhelming when it comes to understanding the financing aspect.

Whilst you’ll no doubt do your homework on car models, safety ratings, fuel consumption and price, getting closer to the purchase stage will raise a few more considerations.

Knowing the right process and areas to watch out for can certainly mean the difference between a great experience and a poor one, which could leave you with higher repayments than you had budgeted for.

So use this step-by-step guide we’ve created, featuring five key tips for buying a new car.

1.       Is the new car for business or personal use? 

Most individuals will need a car for different reasons. Whether it’s strictly for business or personal, or a combination of both – either evenly split or leaning towards a predominant reason for use – it’s important to take a step back and assess its primary objective.

Why? Because you can confirm with your accountant whether you’ll be able to claim a portion of your car use for business purposes and which entity you should buy the car in (through the business or personally), if you’re able to.

The Australian Taxation Office has an instant asset write-off scheme for eligible businesses. While it is restricted to the business portion of the car limit for the relevant income tax year and subject to thresholds, it is often an immediate deduction that small business owners can take advantage of, for both new and second-hand vehicles. 

2.       What are your financing options for a new car? 

Car finance is generally funded via fixed rate finance. Many people don’t realise that this means if you pay out the car loan early, you may end up owing a portion of the remaining interest. 

That’s why it’s so important to align your loan term with how long you think you will realistically keep the car. For example, if you think you’ll be in a position to upgrade the car in four years, consider taking a 4-year loan term. 

3.       What is a balloon payment for car loans? 

You may have heard the term balloon payment but unsure of what it means when it comes to buying a new car. Essentially, using a “balloon” can keep your car loan repayments lower. A balloon is a portion of the loan that you don’t repay over the initial loan term – a large final payment, essentially. It effectively reduces the amount you are repaying over your loan term, to reduce your monthly repayments.

For example, if you think you might keep the car for four years, but don’t want to pay off the full car amount in four years, you might include a 30% balloon in the loan. At the end of the 4-year loan term, you could pay out the 30% balloon with cash, trade the car in or sell it privately (using the proceeds to pay out the remaining balloon). Or, you could roll the balloon figure into another loan and continue paying down the loan.

4.       A low interest rate may not be so low 

A lower interest rate doesn’t necessarily mean lower repayments. While a low rate can be attractive, it’s important to make sure the actual total repayments fit within your budget.

An overlooked element of low interest rates are additional fees, often hidden, which can easily turn the bargain into a blow-out. These can include upfront car loan fees, dealer financing fees, registration and insurance premiums, monthly or annual fees, and even penalties for paying off your loan early. So do your due diligence and remember to read all the fine print, especially when it comes to fees.

5.       Use caution with guaranteed trade-in schemes

Finally, you may want to trade in your current vehicle plus take out finance for your new car. It might seem like a faster way to offload your old car, however there are typically quite rigid trade-in provisions like limitations on mileage, wear and tear on the upholstery and even condition of your tyre tread. Make sure you’re aware of these conditions before signing a finance agreement based on the guaranteed trade-in offer. 

Credabl is uniquely positioned to help you to find the best solution when buying a new car. Give our team a call on 1300 27 33 22 or live chat with us here to find out more. 

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