How to use a personal loan to buy a car

In many cases, shopping around for a new car also means shopping around for a new car loan. So, if it’s all new to you, how do you go about getting the money you need to make your dream car a reality? 

One finance option is using a personal loan to buy a car. In this article, we’ll go through some steps when using a personal loan to buy a car, from the loan application process, the difference between secured and unsecured loans, and how you might get the best deal. 

Step 1: Set your budget

Before diving into the car-buying process, it’s crucial to assess your financial situation. Understanding your income, expenses, and existing debts will help you determine how much you could afford to borrow and repay comfortably. 

There’s a range of budgeting calculators to help, like Westpac’s borrowing power and car loan calculator.

Using these calculators will guide you towards finding a car loan that fits within your budget. 

Step 2: Choose the right personal loan

When choosing a personal loan for a car, you’ll need to choose between secured and unsecured loans. 

Secured Personal Loans

There are many types of loans on offer, but you might find that most ‘car loans’ are actually secured personal loans. These types of loans use the car you’re buying as security, which means you may get a lower interest rate than using an unsecured loan. 

To be eligible for a secured personal loan, the car needs to be new or not too old. For example, with a Westpac car loan, it needs to be less than seven years old. You’ll also get an automatic, complimentary history check to ensure there’s no finance owing on the car and that it’s never been written-off or stolen. 

Unsecured Personal Loans

If it’s an older car, an unsecured personal loan might be suitable. This type of personal loan doesn’t require you to offer any security, which could be a good option for cars that don’t qualify for a secured loan, or for those who don’t want to offer a car as security. 

Many banks also require the car to be manufactured in Australia or imported by the manufacturer, not imported by you. This is another important consideration to see if the car you are after is eligible, and which loan type may be right for you.

Fixed or Variable Interest Rate

Another decision is whether to choose a variable or fixed interest rate on your car loan. 

• A fixed rate remains the same throughout the loan term, so you’ll have repayment predictability and avoid fluctuations in your payments.
• A variable rate can change over time depending on market conditions, so if the interest rate increases, so too will your car loan repayments. 

The age of the car you’re buying as well as your personal circumstances will likely influence your loan choice and interest rate.

Step 3: Get conditional approval for your car loan

You can apply for a car loan with Westpac over the phone, in a branch or online. 

Starting your application for a car loan online with Westpac is straightforward. You can apply when and where it suits you, and save your application as you go. The car loan application process should only take about 10-15 minutes to complete. 

When filling out the application form, you’ll need to answer questions about your financial situation, such as your income, assets, debts and expenses. You may also need to provide proof of these, especially if you’re not an existing Westpac customer. A lender will also consider your credit history and credit score.

By applying online and getting conditional approval, you’ll be able to shop for a car with confidence, as you’ll have a good idea of how much you can borrow and the interest rate you’ll be paying. Conditional approval will also help negotiations with dealers by having a firm budget, and you’ll also avoid any last-minute complications with finance, so your buying process should be smooth and fast. 

Once you have conditional approval, you’ll have 30 days to find the right car. 

• Explore Westpac car loans

Step 4: Start shopping for your car

Now, for the fun part. Shopping for your car could involve buying from a car dealer or a private seller. Buying from a dealership might be more expensive than a private seller, but it may mean you’ll get access to certified pre-owned vehicles, warranties and the paperwork will be taken care of. 

On the other hand, buying from a private seller could save you money, but you may not get a warranty or the true history of previous owners. If possible, have the car inspected by a mechanic before you buy it. 

Once you know where you’ll be shopping, it’s all about finding the best deal and ensuring you’re buying a quality vehicle. Take your time researching different cars and comparing prices across online listings, dealerships and auctions. There may be rebates for electric or hybrid vehicles, so check out any incentives as they may reduce your purchase costs. For any car purchase, look for promotions, discounts, end-of-financial-year or runout sales.

Once you’re ready for test drives, pay attention to how the car drives, and how comfortable you are in it. 

Step 5: Finalising the loan and purchase

You’ve found your perfect car. Now, it’s time to finalise the loan and complete the purchase. You’ll need to share details about the car with your lender, including the purchase price, make, model and Vehicle Identification Number (VIN). 

You may also need comprehensive car insurance before completing any transaction. The lender will process your loan application based on this information. Once finalised, the funds will be paid directly to the seller.

To sum up

A big step in any car-buying journey is finding the right financing option. A personal loan offers a flexible and accessible way to fund your new car, and with the right preparation you could be on the road in no time.