First-car finance options

How to find the best deal to fund your new wheels.

You’ve got your P-plates and are ready to hit the streets – the only thing you need now is your own car.

Whether you’re saving money from your part-time job or are looking at a loan, there are many different finance options to carefully consider – after all, this will probably be the biggest purchase you’ve ever made.

Whichever option you decide on, make sure you look at the total cost of the finance option including interest and fees. 

You may decide you would be happy to spend the original purchase price but not the total amount once interest and fees have been considered.

Here are some of the ways you can get money to purchase your first car.


Buying your car with your hard-earned savings upfront means you’ll never have to worry about interest or ongoing repayments.

You’ll need to carefully consider whether you have enough in savings to cover the costs of getting your car on the road such as insurance and registration, as well as ongoing costs to maintain your car.

If you don’t have enough money saved for the car you want, consider creating a budget to work out your income, expenses and how long it will take you to reach the amount you need. Take advantage of a high-interest savings account to boost your funds.

Think about whether spending your savings will have an impact on your lifestyle and whether you’ll have enough money remaining for holidays or important events. 

Pro: Paying upfront means no interest and no debt.

Con: It could take a long time to save up enough money.

Loan from parents

Your parents or other family members may be able to lend you money.

Make sure everyone involved is clear about the terms of the loan including the total amount, repayment amounts, repayment schedule and any interest charged. 

Consider drawing up a simple contract using a free loan agreement template to ensure both you and your parents are on the same page.

Pro: You can negotiate interest and repayment amounts.

Con: Could impact your relationship with your family if the terms of the loan aren’t clear or you can’t make repayments.


Car loan

Car loans from a bank use your vehicle as security against the loan to give you a more competitive rate than with an unsecured personal loan.

This means if you don’t pay back your loan on time, the lender can repossess your car and sell it to pay out your debt.

You can usually choose between a fixed or variable interest rate on your car loan and both have their pros and cons.

It’s easier to budget with a fixed rate as you’ll know exactly how much your repayments are. 

A variable rate can be changed by your bank at any time, so your repayments can become smaller if the rate goes down but more expensive if it’s increased.

Most loans will have an initial set-up fee so make sure your lender is clear about the true cost of the loan and whether they can waive any fees to help you.

Pro: Usually a lower interest rate than personal loans.
Con: Must be over 18 and could lose your car if you can’t make payments.

Personal loan

Personal loans are unsecured loans, which means you don’t have to provide your car as security. 

This may mean your interest rate is higher and you won’t be able to borrow as much.

Personal loans may have a shorter loan length (known as term) than secured loans meaning your repayments may be larger.

Pro: Don’t have to use your car as security.

Con: Must be over 18, higher interest rate and larger repayments. 

Dealer finance

If you buy your car from a dealership you may be offered dealer finance where the dealer secures the funds on your behalf.

Dealer finance options are usually limited to a specific lender and low interest rates may only be available for certain makes and models.

Many dealers offer a finance interest rate of 0%, but in reality this can make the purchase price of the car more expensive than the same make and model without dealer finance. This is because dealers often bundle the cost of the car with the loan costs and other additions.

You’ll need to work out the individual cost of each item in the bundle to determine if you can get a better deal elsewhere.

The car salesperson may receive commission on your loan which can increase the total loan cost.

Pro: Dealer handles the paperwork.

Con: Must be over 18, limited options with specific lenders and dealer commission may increase rates.

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The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.