A happy young woman by her car holding up her car keys after getting her First Car Loan approved and buying a car.

How to Get Your First Car Loan: Even With No Credit History

A new car is an exciting purchase. It’s a symbol of freedom and a major milestone for students or young people off to their new career. But it can also pose a major problem – how can you afford one without a loan, and how to get your first car loan with no credit history?

It’s a common obstacle, but luckily the loan market has options for first-time buyers like yourself. Car loans can be obtained, but you need to do some preparation before you go to any car lots or loan officers. 

Scroll down for a complete guide on how to budget, apply for, and get a loan for your first vehicle and avoid any major pitfalls.

Your First Car Loan

A car loan, or the option to finance a car, lets you buy a car with money you borrow, then pay back with interest over the course of several years. Most people make a monthly or biweekly payment, but you can structure your repayment schedule however it best fits you and your budget.

Most car lots will offer you a loan on site, but be careful. Car dealerships lower the prices of their cars so they can make their interest rates significantly higher than any bank.

Your first car loan can be a lifesaver, or they can be a money pit.

Let’s start at the beginning with your budget.

How to budget for your first car

Before you start dreaming about a massive Jeep or that slick new hybrid car, take a moment to review your finances. 

The average amount Aussies spend on a new car is about $40,729 for larger models like SUVs and around $26,150 for smaller models. Unless you have a child or other people to move around, you can likely go for the cheaper option. 

You can get a great used car for significantly less. Some of the top used models available in Australia include the Mazda CX-5, Honda Civic, and a Toyota Yaris, all small, dependable cars that you can find on most used car lots. 

Once you have a model in mind, look at what money you have available. Add up any income from work, money your parents can pass your way, and savings, then take 20 percent from that number.

That 20 percent is the most you want to spend on any car, even if you finance. A loan has to be repaid, so if you go over that 20 percent ceiling you may find yourself defaulting on loans – a serious mistake that can cost you for years to come. 

Now that you have your price, factor in the other costs of a car:

  • Car insurance – The average insurance payment for an Australian car owner falls between $97 and $120 per month. 
  • Registration/CTP/License costs – These government-regulated requirements need to be renewed each year for about $680.
  • Servicing and tyres – This varies significantly from one car to another. You need to budget for at least one service visit a year and plan to have your tyres serviced no less than once every five years.
  • Petrol – 2019 saw a major spike in fuel costs. As of the time of publication a litre cost $2.
  • Toll roads – Depending on your commute, you may need to factor in toll roads, which will cost between $9 and $13 per trip.

After you have all of that added up and your ceiling for a car price, it’s time to start shopping around for cars. Remember, your budget is your business – do NOT tell a used car salesperson your price. 

You have the option to pay upfront, but you may choose to finance your first vehicle.

Young woman in new car holding keys after she secured first car loan

Why finance your first car

The choice to finance your purchase can seem odd at first glance. Why not just take what you have and buy what you can afford rather than take on your first car loan and be saddled with payments?

Of course, a cash purchase is faster a cheaper, but it can also be a barrier to some additional benefits.

When you finance your purchase you can afford something newer and better. If you’re dying to drive an electric or hybrid car but can only pay for a used standard model, check out your loan options to see if that updated vehicle is an option.

You can build up your credit history with regular payments. As long as you don’t pay late or default on any part of your first car loan, you can get a car and prove yourself a viable borrower.

A good credit score makes it easier to get credit cards, apply for a home loan, or finance a small business. Your car payment history is hard proof that you’re a responsible borrower who’s worth your bank’s time.

Where to find a loan

A good credit score makes it easier to get credit cards, apply for a home loan, or finance a small business. Your car payment history is hard proof that you’re a responsible borrower who’s worth your bank’s time.

To find your first car loan, you need to decide what kind of loan you want. 

Secured loan – This is fairly straightforward. You ask a bank or an independent loan broker for the cost of the car and come up with a payment plan. 

Ideally, your payments will finish in about four years. However, different lenders like different structures, so make sure you get a payment plan you can manage for your first car loan.

The security uses the car you buy as collateral against the loan. If you default on the loan, the lender can repossess it in lieu of payment and put a big black mark on your credit history.

A secure loan offers lower interest rates in hopes that you will pay off your car so you don’t lose anything. However, the loan may cost you the car itself, which can be a major setback.

Unsecured car loan – A riskier loan that doesn’t place your car or any assets up against the money you borrow. Instead, this loan gets paid back at a higher interest rate. 

These are essentially personal loans as the idea is to make your lender money while you build up your credit. However, unsecured car loans are hard to obtain without any credit history or proof that you can afford the monthly payments.

Unsecured loans can work in your favor if you want to borrow more than the car’s value in order to cover your insurance costs, any repairs, or upgrades. They also work well when a car is purchased as a gift and the borrower doesn’t want anyone to forfeit the car in the case of a default.

Both options for your first car loan incur fees, some even charge a penalty for finishing your payments early. Read through the agreement carefully and ask anyone you know with borrowing experience to look it over before you sign anything. 

Pre-approved loan – A simple agreement with a bank or lender can help you get into a new car faster and with less haranguing over what kind of loan to get. Your pre-approval doesn’t count as money – you need to contact your lender to finalize the transaction, but it does speed everything up.

A pre-approved car loan helps you set a price for yourself and the dealership well before you see the car, so you make better decisions while shopping. It also increases your negotiating power, which always helps when making a big purchase.

For your first car loan, the pre-approval can be difficult to get. It requires something to borrow against, like property or valuables, and an established credit history.

All of this begs the question – do you need to build up credit history before you even think about buying a car?

A credit card or a loan – what to get first

A credit card can help you improve your relationship with your bank and show that you’re a responsible spender so they feel confident giving you your first car loan. However, if you’ve never had one before or are new to banking on your own, you’ll face some roadblocks. 

In order to get your first card before you apply, you can look for an offer of a first credit card. Banks offer these to clients who are new to credit and need to build up their score. 

You can also get authorised from a family member’s account. Most accounts allow the owner to add people onto their cards, but the name on the account is held responsible for any missed payments.

Alternatively, you can get a co-signer to help you in your card application. A co-signer can help you get approved, but this isn’t always an option with bigger, more established banks. 

Either option puts a lot of financial pressure on both parties, so make sure you sign up for that first car loan with someone you know and trust. A family member is often the best way to go.

Once you have a card, you can start paying off your credit regularly and improving your score. You want a score no lower than 800 in order to get that first car loan and your shiny new, (to you), car.

After you have your credit in shape and your car picked out, you can start investigating loans to get yourself on the road.

Your final checklist for your first car loan

Here’s a quick rundown of everything involved in buying a car with a loan:

  • Make a list of any expenses involved with a car, including toll roads, insurance, and petrol. 
  • Go over your available assets and calculate 20 percent of what you have in the bank plus any income – that’s the ideal price for your new car. 
  • Investigate smaller, used, and fuel-efficient cars in your price range
  • Try to get pre-approved for your first car loan. 
  • Get a credit card if your credit score is too low or nonexistent.
  • Choose a secured or unsecured loan, depending on what your car needs and what you can afford to pay back. 
  • Have a second person go over the terms of the loan with you before you sign. 
  • Structure your loan payments so that you can afford to pay them off regularly and without taking money away from any essentials.

Are you ready to get back on track?

We can help you get your first car loan in one easy visit.

Contact the team at LendEasy today for a free discovery call.

We help our customers find the best loans possible. Find out how to get the best loan and structure a solid payment plan that benefits you, not the bank.

Book your free discovery and get your first car loan today.

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