Should I Proceed With A Car Loan Application?

Lohthatsraspberry on 23/07/2020 - 08:35

I am hoping to purchase a car in October and would like to get a car loan around $18,000. I have been working full-time for a year and in my last year of my degree. I have also now saved $5,000 which I put into a term deposit. I am waiting until October to get another $2,000ish together for emergency costs. I'm 30 if that makes any difference.

The problem is that I have recently closed a $1000.00 overdraft on my savings account, and paid a $440.00 default (from 5 years ago). I have no other debts, but I'm concerned that I won't be approved for a loan. I haven't had any bills in my name for a couple years, except for health insurance and car insurance. I pre-pay my phone each 12 months and the bills have been in my housemates name.

Is it worth trying for a car loan or will I be rejected and have that show up on future credit checks?

Financial

Comments

  • Fredfloresjr on 23/07/2020 - 08:36
    -1

    Go YOLO

  • Belgarath on 23/07/2020 - 08:39
    +3

    No and Yes. Default will have a big impact on your credit score.

  • jimbobaus on 23/07/2020 - 08:42
    +2

    Having a default (even though paid) will limit your ability to go through a traditional lender (banks etc)

    If you do get a loan you will probably get a interest rate penalty due to the "risk" as you have had a listed default before.
    You will probably have to go through a specialty lender to get the loan (Pepper Money, Esanda (bank owned though) etc
    Make sure you research what a fair interest rate is and do not accept one that is higher than is reasonable.

    5 years is how long it takes for a default to be removed from your file, so check when it was listed and see when it is due to come off your file.
    its 7 years if it is a result of a "clear out" which means they could not contact you before it was listed.

    If the loan is declined it will be listed on your file as a declined application
    i would recommend in your situation using a loan broker (Carsales.com.au have one) as they will only submit a loan to a lender they know will approve you
    there are fees for this but it will be rolled into you loan.

    Also do not base you ability to get a loan on you made up "credit score" shown you score checking websites, they have zero impact on whether you will get a loan or not.

  • plasmog on 23/07/2020 - 08:50
    +14

    This is a terrible financial decision and one I would never make, from any practical perspective it would be more sensible to buy a $5,000 - $10,000 in cash once you have enough and to invest the remainder. As a 30 year old with minimal savings, this is especially important if you want to get off your current trajectory of being an impoverished pensioner complaining how life gave them lemons.

    It's all about who you want to become. If you want to become a broke dude with a sweet looking ride, by all means go for it. I am sure many women will find that attractive.

    • ohthatsraspberry on 23/07/2020 - 08:55

      Not a dude and not into women. Looking for a practical ride that requires minimal servicing and repairs. Considered spending my savings, but really would like to not have $0 in the bank.

    • netjock on 23/07/2020 - 10:44

      If you want to become a broke dude with a sweet looking ride, by all means go for it. I am sure many women will find that attractive.

      $18k car loan plus OP needs to tip in a deposit. Won't been much of a sweet looking ride.

      The the topic of sweet rides. 99% of 20 - 30 year old with sweet rides are either up to their eye balls in debt or using someone else's (parent's) money like confetti. Wise women would wise up that these types might live hard when they are young but exactly the type of impoverished pensioners of the future you are talking about.

  • wiipantz on 23/07/2020 - 09:03
    +9

    Simple fiscal answer is no, don't get a loan on a rapidly depreciating purchase it's just plain mental the cost vs. reliability argument is plain false if you buy smart(fees and interest will strip away any perceived benefit).

    Reality is most people still do this and you sound like you will too despite how bad a decision it may be. Your question is about the loan and defaults, yep you are a risk so you may find a loan but get ready for eye watering rates and or terms basically.

    perhaps get a much smaller personal loan that is easier to qualify for and go the middle with vehicle purchase and loan liability as a thought, imho buying a car in cash is the smartest fiscal move almost every time.

    • ohthatsraspberry on 23/07/2020 - 09:23

      Thank you. I'm definitely not set on buying a car. My current car is on it's way out so I'm looking to buy a newer one when it's reasonable. I'm taking on suggestions though and this is helpful advice.

      • wiipantz on 23/07/2020 - 09:57

        Ironically used car markets have gotten stronger during this period so value is harder to come by, what have you got currently? Where are you located? What are you looking for and why/ what purpose?

        There is some helpful info on here about what you can do with a little information, but really as a bargaining site getting a car loan is normally a horrible idea for most.

        • ohthatsraspberry on 23/07/2020 - 10:40

          Falcon AU with the typical side dent (someone drove into my parked car). It's written off but driveable, as it's less than 15 years old and only needed a wheel alignment. However, I know that expensive repairs and servicing are inevitable in the near future.

          I'm happy to save more and spend 5k on a car. My concern was that long term issues of an older car would be more expensive in the long run. I'm in Adelaide and drive 30 mins or 20ks to and from work each way.

          • RCMD11 on 23/07/2020 - 11:29
            +1

            @ohthatsraspberry: Get a 5-10 year old Corolla, Camry, Mazda3, Civic etc and buy it in cash. New cars depreciate fast and it's not worth it.

          • wiipantz on 23/07/2020 - 12:19

            @ohthatsraspberry: Au's are hard to kill, I've seen them go around the clock carrying many issues and the owner prepared for the eventual demise which just never comes. In saying that if you want to upgrade as mentioned a 5-10 year old car is a great choice even 10-14 year old Falcon running on gas or other could be quite cheap and last another looooong stretch as the Barra engine is great.
            In this economic climate i'd be avoiding debt like the plague, I'd advise that without a pandemic tbh.
            I'm also curious why you're putting your cash into a term deposit? Unless you got crazy rates you might get similar or better from an online saver, I'm just re-reading your original message.

            • ohthatsraspberry on 23/07/2020 - 12:43
              +1

              @wiipantz: I suppose it wouldn't hurt to hold on to the car for a little longer. It's LPG which is handy when petrol is high. Might be a good idea to keep it for at least another year.

              I put the $5,000 into a term deposit so I don't touch it. I'm wary of something going wrong and being tempted to spend it. I will now be saving for emergency money I can use if I need (as well as continuing to save for the future). Being financially responsible is sort of new thing for me.

              • wiipantz on 23/07/2020 - 12:52

                @ohthatsraspberry: OMG - Gas AU! that's basically near god tier Ozbargain :P
                Yeah I'd run that puppy into the ground and save like mad for the eventual day it karks it. Then buy like a BA mk 3 gas lol. Or Toyota.

  • Bargainbattles on 23/07/2020 - 09:09

    Will there default be listed on their file for another 7 years considering they just paid for the default?

    • jimbobaus on 23/07/2020 - 09:11

      Its based on its original listed date and its only 7 years if the default was listed due to loss of contact with the OP
      standard list time is 5 years

  • Mechz on 23/07/2020 - 09:17
    +8

    How badly do you need a car? What will you use it for? Plenty of cars around the 5k mark that would get you going that are reliable and low maintenance. This would reduce your financial stress significantly.

  • EightImmortals on 23/07/2020 - 09:18
    +4

    If you have a full time job then I would be saving a bit extra and then paying outright. If you can save 15K (I haven't seen your spendings so can't advise on where you could cut back, but you're 30 so should be able to figure that out yourself by now. :) ) you can get a decent used car for 10K and still have 5K in the bank and you wont have the debt (plus interest) hanging over your head. If it's only a few more months to avoid a major stress situation I know what I'd be doing.

  • iforgotmysocks on 23/07/2020 - 09:25
    +8

    Bump that loan up to $75k and get a high yield investment.

    • wiipantz on 23/07/2020 - 09:55
      +1

      "you gotta pump those numbers up!"

  • kouk on 23/07/2020 - 10:33
    +2

    Great work turning your financial situation around, but you're not done yet.
    Forget the car loan. I know you probably feel like you deserve a bit of a reward, and rightly so, but don't go undoing all your hard work so far. Revisit this idea after you've graduated and have had a job for a couple months.

    In the meantime, if your current car is costing you more to run than it's worth (Uber starting to look attractive), I would use the term deposit money to find something suitable.
    Carsales search below $5000 and then sort by economy. Ignore premium brands.

    Out of curiosity, what do you drive now?

    • ohthatsraspberry on 23/07/2020 - 10:43

      Thank you, I'm definitely reconsidering the loan. I replied with my car details above, it's a Falcon AU.

      • kouk on 23/07/2020 - 11:46

        AU Falcons (on gas?) are a great budget daily driver. As long as it's safe to drive I would persevere with it for another year or until it dies. When that happens I would look at a >2010 make Hyundai i30 or Suzuki swift.
        Good luck

  • Quantumcat on 23/07/2020 - 10:35

    Get an electric scooter for like $500 and ride your current car until it is well and truly unfixable. Sell it for scrap and investigate getting another car then, with the scooter as backup to get where you need to go while looking. You never know how long it might last. I was sure my old car (1999 Festiva) was going to die any minute, and was looking at new cars every weekend, but it stubbornly just kept going. Eventually sold it after a year but it was still going! Will hopefully last the buyer another few years too. Your financial situation can only improve from here, the longer you can wait until you buy it the better, both because it will be longer since your default and because you'll have more savings and may not need to get a car loan (which you should avoid at all costs). Have a really good think about whether you NEED a new car right now or just want one because you are sick of driving a rusty piece of junk. The longer you can live with the piece of junk the better for your future financial circumstances.

  • netjock on 23/07/2020 - 10:46
    +1

    Depending on the interest rate, I would pass on the car loan. Even if it is only 6% only if you think you can pay it off in 2 years AND you really need a new car.

  • Willy Stains on 23/07/2020 - 11:09

    is your job stable enough for a loan?

  • Drakesy on 23/07/2020 - 11:35
    +5

    Just get a $5-7k kia, toyota, hyundai and you will have many years of worry free driving. More money doesn't necessarily mean more reliable. I'd save the money and keep it for a house deposit.

  • yoonibear on 23/07/2020 - 11:46
    +1

    I wouldn't recommend locking yourself into a car loan ($18k over how many years?) specially w/ the whole covid/recession thing going on.
    The AU Falcon's fairly reliable and I'm assuming that since it was made in Aus that parts will be cheaper for it. If I was in your position, I'd drive the falcon into the ground (until the cost of fixing it outweighs the value of it) then purchase a second hand low km camry/yaris.

  • dust on 23/07/2020 - 12:04
    +3

    Don't get a loan to purchase a depreciating asset.

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