If you're looking to buy a car but you haven't saved the cash, then you might need to apply for a loan from a credit provider, like a bank, credit union or finance company.

Borrowing funds to purchase a car will naturally add to the cost of the vehicle. Try to minimise the amount you borrow and always shop around for a competitive interest rate.

Secured vs Unsecured

Credit providers offer secured and unsecured loans. A secured loan is where the credit provider has a charge over the car while the loan is being paid. Generally the interest rate on a secured car loan is much less than on an unsecured loan. But with a secured loan, you'll have to take out comprehensive insurance with the credit provider noted as an interested party on the policy.

Fixed or Variable?

You will also need to decide whether you want a fixed or variable interest rate loan. A fixed interest rate loan is where the repayments are fixed for the period of the loan. A variable interest rate loan, the interest rate may fluctuate during the term of the loan. Speak to your credit provider as to which type of loan best suit your needs.

Also check with the credit provider whether you can repay the loan with weekly, fortnightly or monthly instalments.

What you need to provide

To obtain a loan, credit providers will want to know how long you've lived at your current address, if you have a job, and if you earn enough to repay the loan, as well as all your other financial responsibilities (mortgage repayments, credit cards etc). Their willingness to lend you the money will also depend on the age of the car, the amount of the loan and your previous credit history etc. They will also want to know how well you have paid off other loans, as well as what worthwhile assets you own.

For a young first car buyer, these factors may be difficult to establish. In this case, the credit provider may require an acceptable guarantor (eg a parent or immediate family member) to guarantee the loan. But beware! If you can't keep up the repayments, your guarantor will have to pay the loan and that could cause drama.

How much do you need?

RACQ advice is to arrange your loan for the amount you think you will need before you go car shopping. Then the money will be ready for you almost immediately, whenever you need it.

It provides you with another advantage too. Knowing that you will be able to pay cash for the car often gives you greater bargaining power when you are buying.

Consumer Credit Code

All new consumer credit transactions taking place in Australia must be under the Consumer Credit Code. Now you will be covered by the same rules wherever you live and for whatever purpose you use the credit.

The Code requires lenders to present credit information in a clear and easy-to-understand format. So credit providers such as banks, building societies, credit unions, finance companies and businesses, MUST tell you what your obligations are in any credit arrangement.

Credit providers are required by law to truthfully disclose all relevant information about your loan in a written contract, including the interest rate, fees, commissions and other information which, in the past, was sometimes unclear.

While the aim of introducing user-friendly credit contracts is to prevent many of the credit problems faced by consumers in the past, the Code recognises that it is still important to protect consumers when they do get into trouble. If you lose your job or are sick, tell your credit provider, they may be able to change your repayments so that you can better meet the repayments.

A court can also order changes to a contract if it is considered to be unjust. Credit providers are now required to be careful when making contracts with people who will find it difficult to meet their repayments.

A failure to continue your repayments regularly could mean you will be labelled as a "bad credit risk," leaving you with a stigma, which could affect your eligibility or capacity to take out other loans.