Car Finance Mistakes to Avoid

It pays to do your homework before proceeding with a car loan application.
Published on April 23rd, 2020
  Written by 
Adrian Edlington
Adrian Edlington is PR & Communications Manager at Savvy. With a keen interest in personal finance, car loans, the mortgage industry, cost of living pressures, electric vehicles and renewable technology, Adrian's research includes conducting primary data surveys and analysis of up-to-the-minute secondary Australian data sources. His work on behalf of Savvy has been featured on ABC.net.au The Conversation, the Sydney Morning Herald, AFR, News.com.au, The Age, Herald Sun, Adelaide Now, SBS On The Money, 7News, Car Expert, Which Car, Drive.com.au and more. In his spare time, Adrian enjoys mountain biking and business podcasts.
Our authors
   Reviewed by 
Bill Tsouvalas


Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors

Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.
Happy car owners in car with keys

At Savvy, our mission is to empower you to make informed financial choices. While we maintain stringent editorial standards, this article may include mentions of products offered by our partners. Here’s how we generate income.

Buying a car is an exciting time, but navigating the world of car finance can be overwhelming. From credit scores to loan terms, there's a lot to consider. To help you steer clear of potential pitfalls, we've compiled a list of common car finance mistakes to avoid.

Mistake #1: Ignoring your credit score

Your credit score plays a significant role in determining the interest rate you'll qualify for on your car loan and whether you can take out a loan at all.

Your credit score is determined by the information contained in your credit report, including factors such as:

  • The total amount of money you've borrowed
  • The frequency of your credit applications
  • Your history of timely payments

In Australia, credit scores range from zero to either 1,000 or 1,200, depending on the credit reporting agency, with a good credit score typically falling between 700 and 832. A higher credit score indicates lower risk to lenders, potentially leading to better loan terms and cost savings.

Ignoring your credit score or neglecting to check it before applying for finance can therefore be a costly mistake. Before applying for a car loan, take the time to review your credit report, address any errors or discrepancies, and work on improving your credit score.

Mistake #2: Overlooking the total cost

When taking out a car loan, many buyers focus solely on the monthly loan payments and overlook the other costs involved. Remember to consider factors such as the loan term, interest rate and any other fees or charges associated with the loan, as well as additional costs related to car ownership. Failing to budget for these expenses can leave you financially strapped down the road.

Before applying for a loan, set a realistic budget that covers:

  • Monthly payment: aim for a comfortable amount – often 10–15% of your gross income.
  • Insurance: consider car type, driving habits, and desired coverage options.
  • Maintenance: regular servicing and unexpected repairs are inevitable expenses.
  • Fuel: research fuel efficiency and calculate costs based on your driving needs.
  • Other expenses: don't overlook registration, taxes and things like potential parking fees.

Remember, financial well-being extends beyond vehicle ownership. Prioritise essential expenses and ensure the loan payment comfortably aligns with your overall financial picture.

Mistake #3: Not exploring your options

One of the biggest mistakes you can make when it comes to car finance is skipping the research phase. It's crucial to shop around for the best loan terms, interest rates and financing options available to you. Don't settle for the first offer that comes your way – take the time to compare quotes from multiple lenders to ensure you're getting the best deal possible. When it comes to car finance, there are several options available, including:

  • Dealerships: dealerships typically offer a convenient, streamlined buying and financing process, allowing you to complete both transactions in one place. However, they often mark up interest rates and choice can be limited as they primarily focus on their partnered lenders.
  • Banks and credit unions: banks and credit unions offer easy access to competitive rates and can guide you through the financing process and address any questions or concerns you may have. However, they generally have more stringent lending requirements, which may limit the availability of loans if you have bad credit or want to buy an older vehicle.
  • Online and specialist lenders: online lenders provide a fast and convenient option for securing car finance. They are often more flexible than banks and may consider a wider range of applicants and vehicles, though with potentially higher interest rates and fees.

It’s also important to know the difference between lenders and car finance brokers. Lenders, like banks and credit unions, offer loans directly, while brokers act as intermediaries, connecting borrowers with multiple lenders to find suitable loan options for a fee.

Mistake #4: Skipping the pre-approval process

Not getting pre-approved can be a costly mistake when it comes to car finance. Pre-approval involves applying for a loan before shopping for a car. Doing this allows you to shop for a car with confidence, knowing exactly how much you can afford to spend and what interest rate you qualify for.

The process for getting pre-approved is similar to the loan application process, but without the hard credit check that can impact your credit score. Once you have it, you can compare offers from different lenders to find the one that best suits your borrowing needs, considering factors such as loan amount, interest rates, fees and other terms.

Pre-approval usually remains valid for up to three months, giving you time to assess your options and decide whether to proceed with a car loan application rather than make a rushed decision or submitting multiple applications. It also puts you in a stronger negotiating position with dealerships and private sellers, as you'll already have financing lined up.

Mistake #5: Not reading the fine print

Before signing any loan agreement, it’s important to familiarise yourself with the small print, which will cover aspects such as:

  • Interest rate: the annual percentage rate (APR) reflects the true cost of borrowing, encompassing both the base rate and any additional fees. Understand how it's calculated and its impact on your total loan cost.
  • Loan term: the length of the loan, expressed in months or years, determines your monthly payment amount and total interest paid. Choose a term that aligns with your budget and repayment goals.
  • Prepayment penalties: some loans penalize early repayment, potentially negating the benefit of paying off your loan sooner. Ensure you understand any associated fees.
  • Late payment fees: understand the consequences of missing or delaying payments, including potential penalties and impact on your credit score.
  • Additional fees: be aware of any origination, processing, or documentation fees associated with the loan. Factor these into your overall loan cost comparison.

Don't hesitate to ask clarifying questions and seek professional advice if needed. Remember, informed consent is crucial for making responsible financial decisions.

Mistake #6: Getting upside down on your loan

Getting “upside down” on your car loan means that you owe more on the loan than the actual value of the car. This situation can arise due to several factors, such as:

  • Selecting a lengthy repayment term, which results in lower monthly payments but slower reduction of the principal balance.
  • Providing a minimal down payment or opting for a zero-down payment financing option, which increases the financed amount.
  • Choosing a vehicle with rapid depreciation, leading to a faster decline in its market value.

To avoid this situation, consider the following strategies:

  • Make a larger down payment to reduce the loan amount from the outset.
  • Opt for a shorter loan term to pay off the principal faster and minimise the risk of owing more than the car's value.
  • Select a vehicle with strong resale value to mitigate depreciation-related losses and reduce the likelihood of becoming upside down on the loan.

Avoiding these common car finance mistakes can help you enjoy a smoother, more stress-free car-buying experience. If you need more support, you can turn to Savvy. Our service provides expert guidance and access to hundreds of loans from more than 40 lenders to help you find the best car loan for your needs. Get the wheels in motion today.

Did you find this page helpful?

Thanks for your feedback!

This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for car loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

In this article

Share this article

Share on facebook
Share on twitter
Share on linkedin
Share on email
Share on pinterest

Looking for a car loan quote?

Compare over 40 lenders with Savvy and save on your next car purchase.

* Terms and conditions and lending criteria apply.

Smart money saving tips

Subscribe to our newsletter.

By subscribing you agree to our privacy policy

Related articles

Looking for a car loan?

Explore a range of car finance options with Savvy and get the wheels in motion today. 
Happy car owners in car with keys

We'd love to chat, how can we help?

By clicking "Submit", you agree to be contacted by a Savvy broker and to receive communications from Savvy which you can unsubscribe from at any time. Read our Privacy Policy.