Sports car
Friendly guy in a suit

Your Friend

Hey what’s up?

Guy looking concerned

Your Friend

Well I got my first car from a dealership, which is a business that sells new and used cars, but after that I went with private sales.

It's great you’ve got a car in mind, but I reckon you need to think through a few things before going out and buying it.

Happy guy

Your Friend

You need to choose a model that's right for you and one you can afford. What are you going to use your car for? What is your budget, and have you thought about the ongoing costs of running and maintaining a car?

You might want something that’s pretty safe, not too powerful and that doesn’t cost heaps to run.

Guy thinking

Your Friend

Sure I can come with you. It’s a good idea to bring someone along with you who knows about cars. But first you need to think through a few things.

Guy talking

Your Friend

There’s heaps more to work out. Firstly, how much are you willing to pay for your car and are you being realistic?

There’s lots of ways to buy a car, how do you know which one is right for you and how do you get a good deal?

Sad looking guy

Your Friend

Sure I can come with you. You can get a warranty through some dealers, so if something goes wrong you can take it back. But I think you need to take a step back and look at what car you really need and what you can afford.

Guy thinking

Your Friend

Well there’s plenty you need to think about. First you need to work out what car you want. If you start shopping without a car in mind, you might end up with a car that’s totally unsuitable for you, or something you can’t afford to run and maintain.

Guy talking

Your Friend

Prices can be very different. Car yards can be more expensive than private sales, but you can get a warranty so if something goes wrong you can take it back. Auctions can be even cheaper, but you may not be able be able to arrange a test drive or an inspection so it can be risky. Then there are online sales. You really do need to shop around.

Happy guy

Your Friend

Maybe I can. But only if you do your homework. OK, let me ask you a question. How much does a car cost to run and maintain?

I’ve got an idea. Write down all the things you can think of that you have to pay for when you have a car.

Guy smiling

Your Friend

Look, it’s a smart move to try and get a good deal. But you get what you pay for. An older car that’s done heaps of kilometres, bought at a private sale could turn out to cost you a lot more than if you’d bought from a dealership or bought a car that’s done fewer kilometres.

Happy guy

Your Friend

Now let me ask you a question. Let’s say you’ve shopped around and know what you’re willing to pay for your car and you’ve even done a budget for how much it will cost you to run and maintain.

Guy thinking

Your Friend

Car yard finance is usually more expensive than getting a loan from a bank. But these aren't the only two options. Building societies and credit unions also offer loans.

Saving up and buying the car outright will cost you the least. Even saving up most of it and just borrowing a little bit will cost a lot less than borrowing the whole amount. So, slow down and think things through and have your finance plan in place before you buy.

Happy guy

Your Friend

Yeah funny. You still owe me fifty bucks.

Guy talking

Your Friend

Looking at your options is a smart move and buying it with your own money is the cheapest option.

Guy looking concerned

Your Friend

Not a great move. They could take the car and sell it and most likely get less than what you bought it for. Then you're left to pay what is still owing on the loan. Not only that, but you may receive a bad credit rating. Lenders refer to credit ratings when they decide whether they should lend someone money. A bad credit rating may affect your ability to borrow money for a long time.

Guy looking concerned

Your Friend

This might be an okay option if you know you're going to run out of money. So let’s say you sell your car because you know you are going to run out of money and cannot afford the repayments on your loan. The car will most likely depreciate, and be worth less than when you bought it, so you may not get enough money from the sale to pay out the loan. Also, the company that lent you the money will probably charge you with fees and other charges. These charges are specified in the contract and can be things like early termination fees. But, at least with this option, your credit rating might still be OK, as long as you pay back all the money you owe.

Happy guy

Your Friend

That’s right! If things start going wrong talk to your lender. You might be able to work out a temporary repayment arrangement that you can afford, until you get back on your feet. You may still need to sell your car but if you ignore the problem your car may be repossessed, you may be hit with extra charges and your credit rating may be affected.

If you receive a bad credit rating you may find it really hard to borrow money for some time. This could affect future plans you might have such as buying a house.

View more teaching resources on moneysmart.gov.au