Top Financial Mistakes to Avoid When Buying a Vehicle

Buying a car is one of the biggest financial decisions most people make. Whether it's a brand-new model or a used one, the process can be exciting—but it’s also easy to make mistakes that can impact your financial wellbeing in the long run. If you’re not careful, a decision that’s meant to bring convenience and freedom could quickly become a financial burden.

At Automotive Financial Services (AFS), we’ve helped countless Australians finance their vehicles, and we’ve seen the common mistakes people make during the process. So, before you sign on the dotted line, here are the top financial mistakes to avoid when buying a vehicle.

Focusing Only on the Monthly Repayments

One of the most common mistakes people make when financing a vehicle is focusing solely on the monthly repayments. While lower monthly payments might seem like a good deal, they can sometimes lead to a much more expensive loan in the long run.

Lenders can offer longer loan terms, which reduces your monthly payment but significantly increases the total interest you’ll pay over the life of the loan. Stretching your loan over five or seven years might lower the immediate financial burden, but it could cost you thousands more in interest.

At AFS, we always recommend looking at the full picture. Consider the total cost of the loan, not just the monthly repayments. It’s better to strike a balance between manageable monthly payments and a reasonable loan term, ensuring you’re not overpaying in the long run.

Skipping the Deposit

Skipping or offering a small deposit on a vehicle can lead to financial trouble down the road. While some lenders might offer zero-deposit financing, putting down a deposit upfront lowers the loan amount and helps reduce the total interest you’ll pay over time.

Without a deposit, you’re financing the entire purchase price of the car, which could result in higher repayments and a larger overall cost. A deposit can also give you more negotiating power when it comes to interest rates and loan terms.

At AFS, we encourage customers to put down at least 10-20% of the vehicle’s price as a deposit. It’s a smart way to reduce your loan burden and improve your financial position right from the start.

Not Factoring in All the Costs of Car Ownership

It’s easy to get caught up in the excitement of buying a car and forget about the ongoing costs of ownership. Beyond the loan repayments, there are additional expenses you need to budget for, including:

• Insurance
• Registration
• Maintenance and repairs
• Fuel costs
• Depreciation

Failing to account for these costs can quickly strain your finances. Before committing to a vehicle, take the time to estimate your total cost of ownership. At AFS, we always remind our customers to think beyond the purchase price and factor in these ongoing expenses. It’s better to know what you’re in for upfront than to be caught off guard later.

Choosing the Wrong Loan Type

Not all vehicle loans are created equal, and one of the biggest mistakes buyers make is choosing the wrong type of loan for their situation. You’ll often have the option between a secured loan and an unsecured loan:

• A secured loan uses the vehicle as collateral, which generally results in lower interest rates. However, if you can’t keep up with repayments, the lender can repossess the vehicle.
• An unsecured loan doesn’t require collateral, but it often comes with higher interest rates.

Another option to consider is a balloon payment. This structure allows for lower monthly repayments by deferring a lump sum (the balloon payment) until the end of the loan term. While it can make your payments more affordable in the short term, you’ll need a strategy to handle the large payment when it’s due.

At AFS, we offer both secured and unsecured loans, as well as loans with balloon payments. Our team works closely with each customer to find the best loan structure based on their financial goals and circumstances.

Failing to Get Pre-Approval

Walking into a dealership without a clear idea of your budget can lead to impulse decisions that stretch your finances. Pre-approval gives you a solid understanding of how much you can borrow, your interest rate, and what your repayments will look like. It also strengthens your position when negotiating with dealers, as they know you’re a serious buyer with financing ready to go.

At AFS, we offer quick and easy pre-approval for vehicle loans. This allows you to shop for your next car with confidence, knowing exactly what you can afford.

Underestimating Depreciation

Depreciation is an unavoidable part of car ownership, but many buyers fail to consider just how much their vehicle will lose in value over time. On average, new cars lose about 20% of their value in the first year and up to 60% within five years. This can be a problem if you’re planning to sell or trade in your car before it’s paid off, as the vehicle’s value might be less than what you still owe.

One way to minimise depreciation is to consider buying a slightly used car—a car that’s one or two years old has already taken the biggest depreciation hit but is still in great condition.

At AFS, we help customers understand the long-term value of their vehicle and how depreciation might impact their financial decisions. We offer financing for both new and used vehicles, giving you flexibility to choose the option that works best for you.

Ignoring Your Credit Score

Your credit score plays a huge role in determining your loan’s interest rate and terms. If you don’t check your credit score before applying for a loan, you could end up with a higher interest rate than you were expecting—or worse, be denied a loan altogether.

Before applying for vehicle finance, take the time to review your credit score and address any issues that might be holding it down. If your credit score is less than ideal, there are steps you can take to improve it, such as paying off outstanding debts and ensuring all bills are paid on time.

At AFS, we work with customers across the credit spectrum. If your credit score isn’t where you’d like it to be, we can help you explore options and find a loan solution that fits your situation.

Final Thoughts

Buying a vehicle is a major financial decision, and avoiding these common mistakes can help you make smarter choices that protect your finances. From understanding the full cost of ownership to choosing the right loan type and getting pre-approval, it’s all about doing your homework and planning ahead.

At AFS, we’re here to help you navigate the car-buying process and secure a loan that fits your budget and goals. Whether you’re buying new or used, need a secured loan or prefer the flexibility of an unsecured loan, we’ll work with you every step of the way to ensure a smooth and successful vehicle purchase.

Ready to buy your next vehicle? Talk to AFS today, and let us help you avoid financial pitfalls while getting the car of your dreams.