Cars can bring mobility, freedom and pleasure. It is important to consider all your options before taking the plunge. Here are some tips to help you when purchasing a car from new or used, insurance and finance options.
- Different ways to buy
- Arrange your finance first
- Checklist for selecting the right car
- Examine the whole picture
- What's it worth?
- Buying privately
- Used car dealers
- Car brokers
- Legal ownership
- Different types of insurance
- Arrange your insurance before you pick up your car
You can buy a car by
- Paying for it with your savings
- Taking out a personal loan to cover all or part of the cost
- Borrowing the money from the seller (this 'dealer finance' is usually provided by an outside financial institution)
- Private leasing ^
If you need a loan to purchase the car, it's best to organise this first before you pick a car you can't afford or rush into a car finance offer. Make sure you have the bargaining power of pre-approved finance when searching for your 'dream vehicle'.
- Will it seat enough people and carry a big enough load?
- Does it have sufficient power?
- Will it do all the jobs required?
- Can I afford to run and maintain it?
- Is comprehensive insurance for this model affordable?
- Will this model hold its value?
- Is it going to be reliable?
- Is it safe and environmentally responsible?
- Am I going to enjoy owning it?
- Lastly and most importantly, am I letting my heart rule my head? ^
When buying a car, it is important to look at the whole financial equation, because the purchase price does not represent the entire cost of a car. There's a range of other bills that you can expect either immediately or soon after your purchase.
Whether you buy new or second-hand, you will encounter government charges. State governments levy stamp duty and either a registration fee or a transfer fee if the vehicle is already registered.
With new cars, there has been a trend towards 'drive-away' prices but many advertisements still put 'dealer preparation charges' in small print. The message here is simple: work out all the charges and make sure they fit into your total budget. A checklist is provided on the next page to help you calculate the real cost.
There's also compulsory third party personal insurance to organise and you'll need insurance too.
In certain cases, such as when a car is registered in the name of a business, fringe benefits tax may be payable. For information on this, speak to the Australian Taxation Office or your accountant. ^
How do you know what the car you are buying is really worth? Simple - do your homework. There are various car magazines, motoring associations and website which will provide a guide to average used car prices. ^
Buying privately is generally cheaper but it means going without a warranty unless the car is still covered by a transferable new car warranty. You can't compare a range of cars side-by-side (except at a car market) and buying privately often means trudging all over the city to see cars which don't live up to the expectations raised by the advertisements.
If buying at a 'car market' - which brings together a group of buyers and private sellers - you must treat the purchase in the same way as a private sale and do all the usual checks. At a market you can do some comparative shopping, and can often do more bargaining. ^
The majority of people are honest and decent, but you must still double-check everything you are told. If a car is described as a 1990 model, for example, and the paperwork doesn't confirm this, it could have a significant influence on the vehicle's value. Also examine the logbooks or service records to confirm the car has been regularly and properly serviced throughout its ownership. ^
If you buy from a used car dealership, it pays to go to a professional, service-oriented establishment which offers a good selection of stock and has a well set-up workshop to perform any repairs which may be required during the course of the warranty. Some car dealers provide NRMA reports. If so, ensure that it is up to date, and then study it carefully to ensure that you understand the condition of the car you wish to purchase. ^
Unless you're feeling very brave or lucky, it's best to leave auctions to the pros. They involve a greater risk, since cars are sold 'as is' and it's usually not possible to perform a thorough mechanical inspection beforehand. Another trap for new players is that the purchasing decision has to be made quickly, which is rarely the best way to make it. ^
Some buyers prefer to use the services of an independent motor vehicle broker. You explain to the broker what you want and he or she finds the car and negotiates the price on your behalf. The broker can also organise a trade-in. Vehicles bought through brokers should carry the manufacturer or dealer warranty. The broker generally receives a fee from the seller, so you pay no additional fees. ^
Is the car encumbered, which is to say:
- Does the car truly and fully belong to the person selling it?
- Is it still the subject of a financing arrangement?
- Has it been used as security on a loan which has not been discharged?
- If so, it can be repossessed, even though you have bought it in good faith?
The place to check is through one of the registers of encumbered vehicles (REVS). These vary slightly from state to state but, in general, will provide free advice as to outstanding loans or other financial encumbrances affecting any properly registered motor vehicle.
To search for encumbrances (any money owing on the vehicle) quote the;
- Vehicle registration;
- VIN/chassis number; and
- Engine numbers ^
There are four basic types of automotive insurance.
This covers the damage caused to your vehicle during an accident and any damage your vehicle may cause to other cars or property. Many policies include additional benefits such as a rental car while yours is off the road. Driving a car which does not have comprehensive insurance is putting yourself at great financial risk.
Third Party Property
This covers the damage you might cause to other vehicles or property in an accident. Damage to your own vehicle, however, is not included. It's better than nothing but still leaves you exposed to losing the entire value of your car.
Third Party, Fire and Theft
A more expensive version of third party property insurance, this will cover your car if it is stolen or damaged by fire, but not if it is involved in an accident.
Third Party Personal
This is also known as compulsory third party (CTP). It is obligatory in all states, though there are different methods of paying for it.
Third party personal insurance covers the injuries sustained by victims of an accident. It does not cover property damage and, technically speaking, doesn't cover a driver who is 'at-fault'. However, many companies now offer CTP policies which include 'at-fault' drivers. These are well worth considering. ^
Protect yourself and your new asset - make sure it's insured before you take it home. ^