If you’ve got your eye on a new car, chances are you won’t have enough money saved to pay cash.

One of the best ways to achieve your goal will be a car loan. It works like a personal loan, but the difference is that it can only be used for the purchase of a car, which is then held as security. Some institutions refer to it as a car loan while others call it a secured personal loan, but it’s essentially the same thing.

The advantage of a secured car loan is that the rate is lower than that of an unsecured loan. Rates for car loans start as low as seven percent, but for unsecured personal loans you can expect to pay upwards of nine percent, with most major banks charging closer to 13 percent.

“You can also generally borrow a larger amount if the institution has security over the vehicle,” says Mark Franzmann, head of marketing with Bank of Queensland. Some lenders will lend a maximum of $100,000 for a car loan while most unsecured loans only go up to $40,000.

Some companies only offer car loans for new or newish cars — for example, cars no older than three. Lenders can be more certain that a new car is in good condition and likely to be looked after better.

You may also find the interest rate you are charged depends on the age of the car. Some credit unions have better rates for newer cars for environmental reasons, says Anthony Sexton, research analyst with Cannex. For example, with Savings & Loans Credit Union SA’s Breathe Easy Loan, customers get a discount on the interest rate based on the greenhouse rating of the car they buy. The discount can be as much as half a percent, says Kimber, for cars with a rating of between 10 and 20.

It’s important to shop around for a car loan and don’t limit yourself to major banks. Sexton says credit unions and building societies are good sources of car loans.

“The same way you’ll haggle over the price of the car, you should haggle over the finance,” says Bank of Queensland’s Franzmann. Don’t simply accept the first rate offered to you.

Make sure you understand exactly how the loan will work and the fees involved. Some of the most important questions to ask are:

* What is the interest rate?
* Is the interest rate fixed or variable?
* What fees apply — are there any upfront or ongoing fees? As you can see from the table at left, some institutions charge no establishment fees but others charge upwards of $150.
* How often will I have to make repayments — fortnightly or monthly, for example?
* How long will it take to repay the loan?
* What is the total cost of the loan including fees and interest over the entire term of the loan?
* Can I make extra repayments without being charged a penalty?
* Are there any penalties if I fall behind in repayments?
* Can I pay out the loan early and if so, is there a fee? This is particularly important as people often upgrade their car. If you’ve taken out a five-year loan but after three years want to trade in your car, you don’t want to be charged a penalty to pay out the loan.
* Am I required to take out comprehensive insurance on the car?

It’s a good idea to have your finance lined up before looking for a car. This will put you in a better bargaining position because you know exactly how much money you have to play with. This is particularly so if you’re buying from a private seller.

You won’t be able to actually take out the loan at that stage because the paperwork will be linked to the car you end up buying, but you’ll at least get some form of pre-approval.

Many car yards offer finance, so if you’ve at least done some shopping around you’ll know whether what the car yard is offering is a good deal or not. It might be easier to organise the finance through the dealer, but it probably won’t be the cheapest option. If you have a quote already, you have something to compare with the car yard’s offer.

If you do take out a car loan where the car is used as security, the credit provider will require you to take out comprehensive insurance on the car and have this listed on your policy.

“If there is finance on the car, insurance premiums may be higher,” says Barbeler, so you should not be surprised when you get quotes for insurance that prices are a little higher.

You may be able to borrow the money from the lender to pay for the insurance, but remember that will mean paying interest. You might be better off paying for the insurance with your own money if possible or choosing a pay-by-the-month option.

There are other financing options that may be more tax-effective for you, such as a lease, or you might be able to get your employer to contribute to the cost if you need the car for work. It’s worth talking to your accountant to get their thoughts

The downside of driving is the possibility of crashing and in turn, the decision about whether or not to lodge an insurance claim.

Statistics drawn from the AAMI Crash Index series show that the average Australian driver is involved in a motor vehicle crash nearly every seven years.

Yet another 75 percent of drivers have had their car damaged while parked and one in six drivers confesses that they won’t leave their details should they hit your car when you aren’t there.

These statistics don’t even begin to account for those little (ahem) scrapes on car park concrete pillars and the like — those slight, embarrassing lapses in judgment that most people prefer to forget.

Whenever this happens, the driver must decide whether or not to claim insurance. Nobody wants to lose their no-claim bonus, which can add several hundred or even thousands of dollars to the annual premium, depending on the vehicle. Plus there’s the excess. Most excesses range in the area of $400 to $500 depending on your age and driving record.

Most people will ignore the minor scrape incurred in the car park and hope that when their one-in seven-years crash rolls around, it will hit the same spot. However, for the more serious incident, a decision has to be made at some stage: to claim or not to claim.

To claim or not to claim
In the end, it boils down to the mathematics. If the car is not roadworthy, it must be fixed. A brief glance at the damage will give you an idea of whether to pay for it out of your own pocket or whether to make a claim.

On average, if the damage bill is greater than $1000 and you have a good driving record, it’s usually an insurance job. If you are unsure, get a quote from a repairer. Clearly, if your no-claim bonus and excess exceeds this amount and it was a single-party accident, you may prefer to wear the cost.

You don’t necessarily have to pay an excess in all instances. You will need to contribute if you are at-fault or cannot provide the name, address and registration of the responsible party, so always have a pen and paper at hand in the car just in case. It is also worthwhile getting the names and addresses of witnesses.

How to make a claim
Making a claim is simple and entails a quick call to your insurer. Have your policy number and details of the accident on hand, including contact details for any other drivers and cars involved.

An assessor will be appointed to your case and you will be given a claim number to quote if you need more information. The assessor will look at police reports, examine the car and that of the other person involved in the accident.

Consultants will help direct you to a suitable and conveniently located repairer, one usually affiliated with the insurer, although you are entitled to use your own repairer. They will arrange for collection of the car if it is isn’t able to be driven or you can drive it to the repairer yourself. They can also organise a quote and often offer a fast-track glass claims service.

If it is a large claim and the car needs to be written off, the assessor will call you and discuss the replacement cost.

Afraid to make a claim
A lot of people are afraid to make a claim, particularly if they are at fault, thinking the insurance company won’t pay. Don’t be. Most comprehensive car insurance covers at-fault accidents and Australian insurers are generally excellent at paying claims.

The only time a claim would be in jeopardy is if the driver was in breach of the law at the time or hadn’t been honest with the insurer during the initial assessment. For example, when you apply for insurance, the insurer will ask you to provide many details. They will ask about your driving record, whether the car has been modified and whether it is used for business or private use.

This information allows the insurer to determine your risk profile and premium, so it is important to be completely upfront as your insurer may have grounds for refusing your claim if you have been careless with the truth.

The same applies to renewals. Each year you must advise your insurer of any change in your circumstances, such as change of address or traffic infringements.

Occasionally, if the insurer suspects foul play, they may appoint an investigator to the case, but so long as the claim is proved genuine they will pay promptly.

In the US and Europe, there have been many publicised instances of insurance companies trying to intimidate policy holders out of making legitimate claims but to date, this does not seem to be the case in Australia.

Will my premiums be raised?
Some people also fear a claim will mean higher premiums. Car insurance is one thing most people should have and failing to claim defeats the purpose. As most people are involved in a car crash at least once in seven years, as long as you do not stand out as an extremely high risk, an insurance premium rise is unlikely.

If you have had more than two at-fault accidents in two years valued at more than $1000, you may be a candidate for a premium rise, however, this will depend on your tenure with your insurer and how many years you have been claim-free.

Will my insurance be cancelled?
Others are scared that their coverage will be cancelled altogether. Again, this would only happen in the case of an excessive number of accidents or illegal behaviour.

Other considerations
There are more than dollar considerations to factor in when deciding whether to claim or not to claim. Personal injuries such as whiplash, for example, may not emerge immediately and if you haven’t lodged a claim straightaway, you may not be covered. If you think you would rather not claim, you may call your insurance agent and check out your options in this regard. If the other side is at fault and the damage is significant, it is best to let your insurer know immediately, particularly if the other party is uninsured. Insurance companies also urge individuals not to make any admissions of guilt and advise against trying to settle any claim made against you.

Disputes
If you have a dispute with an insurance company, the first step is to try their internal dispute resolution process. If this fails, you can contact the insurance ombudsman, who is the independent arbitrator for the industry.