It’s that time of year when hordes of students complete their final year of school and head off to a job, undertake a training course or to tertiary education. For many families that raises the need for another car and often another that means, a car loan.
While residents in urban areas and large cities may opt for public transport to commute to their post-school career and training, it is not always a viable option, especially in regional and rural areas. Even in cities, when part-time jobs or uni lectures require travelling home late at night, having a car may be seen as safer transport in many instances. Where a job or educational facility is a large distance from home, the car may mean a great time-saver. Having a car may also open up opportunities for work, either part-time or full-time.
So buying a car for a school leaver can be more of a necessity than a luxury in many situations. But then comes the awkward question, possibly in dinner table discussions, who is going to pay for the car? There are sure to be many parents that have endured that ‘interesting’ conversation with their children.
Jade Car Loans presents a number of car loan options to finance the purchase of a new or used car for a school leaver or younger driver. The alternatives are essentially for a parent/carer/guardian or other person to purchase the car with finance in their name or to go guarantor on a loan taken out by the younger driver to allow them to purchase the vehicle. These finance options present a number of considerations when making the buying and finance decisions which will outline.
For the purpose of this discussion we will refer to ‘school leavers’. But that reference and much of the information provided may apply to many younger individuals for which this is a first car and a first car loan.
Car Selection
Before getting into the finance, first a few comments on choosing a car. The typical school leaver/young driver car is an economical small car, often a hatch or small-sized sedan. But that category is becoming smaller and smaller as the popularity for passenger cars diminishes and the demand for SUVs increases. Selecting a suitable car may involve broadening the horizons.
The new car market has been experiencing supply issues due to global pandemic and computer chip issues. This short supply situation has led to a significant increase, in general terms, for second-hand cars. According to the FCAI the supply issues are showing signs of recovering so there may be more new vehicles coming onto the market in coming periods.
Many new cars are arriving with higher price tags than earlier models and the second-hand market is also quite strong in relation to price and demand. Price will of course increase the total loan amount and the monthly repayments. When deciding between new or used, be mindful that second-hand car loans can attract a higher interest rate than new car finance.
For new cars and many good quality used cars, our Secured Car Loan will be the most suitable type of loan. It is suited to all types, makes and models regardless of size and other features.
Personal Car Loan Application Requirements
Personal car loans are consumer finance and as such regulated and governed by ASIC. Any lender that offers consumer finance is required to meet those regulations and not offer a loan which is deemed unsuitable for the applicant. Lenders must assess loan applications in accordance with the regulations.
Under Australian consumer laws, applicants must be over the age of 18. While most school leavers will have reached that age, they may not meet other requirements in a loan application.
The application form requires information about current and previous employment history, income and other financial details. Lenders will also refer to the individual’s Credit Report as part of the application assessment process.
As many school leavers will not have acquired a significant credit history and possibly not have a full-time income, they may not be approved for a car loan on their own. Options do exist in these situations as we will now explain.
Car Loan Options
As mentioned briefly above, the two options for ‘school leaver’ car loans are a guarantor or for a suitable person to purchase the car and allow the younger person to use it essentially as their own.
Going Guarantor and having the loan in their name will put the individual on the start to building their own credit profile and may have other benefits in regard to financial management and personal responsibility. But interest rate may be higher than would apply for an older, more credit-established individual.
Responsibilities and obligations and a level of risk is associated with going guarantor for anyone in regard to all types of finance. These can be reviewed at Moneysmart.
Another and very popular option is for the parent/guardian to purchase the vehicle and take on finance in their own name and ‘gift’ the car to the younger person. This can be a more attractive option in some cases where the individual has a good credit profile to attract the lowest business car loan interest rates.
Existing finance and loans will be assessed by lenders when considering the car loan application. If the applicant has multiple other loans, this may impact the interest rate offered and should be kept in mind.
The driver of the vehicle does not itself impact the car loan quote or conditions but will likely impact the insurance.
Car Insurance
Our Secured Car Loan like other secured loans does require that comprehensive motor vehicle insurance be taken out on the vehicle. Comprehensive insurance is separate from the CTP or green slip which is Compulsory Third Party insurance.
Insurers will take into account the age and driving experience of the nominated driver when issuing insurance quotes. Taking out insurance on a vehicle which is to be driven by an under-25 or under-21 year old driver typically attracts a higher premium.
The insurance policy needs to be current for the entire car loan term. Lenders will typically contact customers each year to ensure the insurance on the vehicle has been renewed for another year.
That is a general and brief overview of the main options but we address each car loan application individually and as such, other alternatives may also present. If you are or have a school leaver that is seeking a car loan to purchase their first car, please feel free to have a no-obligation discussion with us about the most suitable finance option.
Contact Jade Car Loans at 1300 000 003 for car finance options for first car buyers.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
