Borrowing money for a used car in 2024

Thinking of getting a new set of wheels in 2024? Have the price tags of some of the ones you’re eyeing off left you cold? Thousands of Australians are feeling the pinch of inflation and the cost-of-living crisis – and even if you’re in dire need of giving your clunker the heave-ho, buying something factory fresh may just be out of reach for a lot of us. In fact, two million used cars sold in Australia during 2023 which means for every new car purchased, 1.7 used cars saw a sale.

The next best thing is to turn to the used market – and there’s more nuance among used cars than meets the eye.

Setting a budget and a use case

If you want a second-hand car, you need to set a hard budget. How much can you afford in repayments, insurance, fuel/electricity, etc? Do you need it to fit the whole family? Will it be towing a caravan? Is off-road capability needed? This might help you choose your “wants.” Do you want satnav? Climate control? Do you desire a newer, safer car? Limit your search to a few makes and models to speed up the process.

Used vs certified used vs demo

Used isn’t used – there are many “flavours” of used car. The traditional used vehicle – sold “as is” warts and all; a certified used car which is no more than three years old, manufacturer refurbished and sold with an extended warranty; and demonstrator vehicles which may have between 5,000 to 10,000km on the odometer, used by dealers for test drives (which can arguably put more wear on the engine.) The latter two are much cheaper than new cars but are sold at a premium compared with privately sold used vehicles – though with good reason (e.g. the warranty and refurbishment.)

Saving for a deposit

If you are borrowing for a car, especially a used car, you should save for a deposit to have “skin in the game.” Relative to new cars, lenders may impose a higher interest rate to make up for taking on an increased risk. If you can save a substantial sum of money – in interest especially – if you can put even a 10-20% deposit towards your car.

Checking your credit score

Before applying for finance, you want to know all the answers to any questions you’ll be asked. The big “if” is your credit score. The higher your credit score, the more loan options become available to you. You can check your credit score every three months for free at a credit reporting bureau. If it’s unusually low, you can obtain your credit history and determine whether any black marks are recorded and whether you can remove them.

Applying for finance

Buying a car is a huge purchase – as is getting finance. Don’t just accept whatever personal loan your bank might offer; shop around and find better rates relative to the loan term and how much you intend to borrow. Only make soft inquiries – don’t approve credit checks by brokers or lenders as it can affect your credit score, making obtaining finance harder. Getting pre-approval can also set a price ceiling and help in negotiation.

Remember to inspect

Scams are rampant in the used car market so make sure you inspect and test drive a used vehicle as well as sight the logbook and VIN. If a seller is reluctant to divulge critical information – walk away. It’s not worth the risk!

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