Car Loan Comparison in Australia
If you’re in the market to buy a car, you’re probably also in the market to get a car loan. Most people do not buy cars outright in cash: they rely on car financing to access funds for a vehicle purchase. But how exactly do car loans work and how do you make sure you’re getting the best one?
Even experienced buyers can benefit from an overview of the vehicle finance process and find out about options they might not have known about. This guide shows you how exactly do car loans work and how to get the best one in Australia.
What is a car loan? How do car loans work?
Car loans are a type of personal loan that are geared toward a vehicle purchase. They can be used by both business and private individuals, and the money can be spent on a new or used vehicle. Usually, the buyer pays a deposit up front and then the loan is meant to cover the remaining cost. As you repay the loan in regular installments, you will also be paying the interest and fees accrued.
The two main categories of loans are secured and unsecured.
- With a secured loan, the vehicle will serve as collateral, which allows the lender to take it back if you stop making payments.
- With an unsecured loan, there is no collateral.
Car loans may seem expensive at first blush, but getting cheap car loans is easier than you think if you know how to do it.
How to compare car loans
Not all auto financing is created equal. There are quite a few differences to dig into, and there are many different strategies for getting the best car loan. The three main areas to look at are the age of the car, the type of loan or lease, and the features of that finance arrangement.
Age of car
New car finance
includes any car under 2 years old. These come with lower interest rates and are ideal as collateral, since the lender knows that the car will be valuable for a while.
Used car finance
is for vehicles between 2 and 5 years old that have seen some mileage. Lenders typically require that the car should still be less than 10 years old at the end of the loan period.
Older car finance
usually covers any vehicle over 5 years old, since those can rarely serve as collateral. For an older car purchase, it’s easiest to get an unsecured personal loan.
Common car loan types
A standard loan
is where the financier lends the customer money for a new or used vehicle.
is a system where the car dealership acts as a middleman and sets up the loan for you.
Green car loans
is for eco-friendly vehicles such as electrics, hybrids, and fuel-efficient cars.
A chattel mortgage
works the same as a standard secured car loan, but is primarily used for business vehicle purchases rather than personal vehicles.
A commercial hire purchase
is where the customer hires the vehicle and pays the lender a fixed monthly payment, eventually becoming the vehicle owner.
Common car lease types
A finance lease
grants you all the benefits of vehicle ownership, but the lender still technically owns the car. You can choose to become the owner at the end of the loan term.
An operating lease
is set up the same as a finance lease, but you won’t have the option to buy the car outright at the end of the lease term. You will be required to return it.
A novated lease
is an arrangement where a business pays for an employee’s car loan costs out of his or her wages. This creates tax benefits for both the company and the individual.
Important car finance features
The interest rate affects how much money you’ll have to pay back on top of the original loan amount. It could be fixed (set at one point) or variable (fluctuating with the market).
The comparison rate is a more sophisticated metric that includes most of the additional fees and charges on top of the base interest rate. This is a truer estimate of the car’s cost.
The loan term is the time period over which the loan will last. The longer the term, the smaller each payment will be, but you’ll end up paying more interest.
The fees and charges on a car loan could include the establishment fee, monthly or annual service fees, extra repayment fees, and penalties for missed payments.
Repayment flexibility options include ways to move around the bulk of the loan cost, such as a balloon payment, making extra repayments, repaying early, or redrawing.
Use our car loan calculator to figure out your exact repayments based on the loan terms.
Top tips for getting the cheapest car loan
There are two main approaches to making car finance more affordable. One is to get a lower interest rate from the outset to make sure the total amount owed is as low as possible. The other is to reduce your monthly payments so that it’s less of a strain on your finances.
How to get a lower interest rate on your car finance
Buy a new or near-new vehicle: While this may be a big cost upfront, these vehicles have the best interest rates, and they’ll also have the best resale value for you to recoup as much of your costs as possible down the line.
Negotiate on price: A lender would rather make a little bit less money than see a prospective customer walk away. It never hurts to ask for a discounted rate.
Consider car dealership finance: While dealer finance is sometimes more expensive, a certain dealership might have special promotions or discounts going on that one of the big banks would not offer.
Ask for a package deal: If your car loan is set up through your bank and you already have other loans at the same institution, see if you can bundle them and get a discount.
Put down a substantial deposit: The larger your deposit, the better your prospective interest rate, since the deposit reduces risk for the lender.
Ways to reduce your monthly car loan payments
Pursue a lower interest rate: Fight for a smaller rate to reduce your overall repayment cost. Even a small difference in percentage could translate to thousands of dollars.
Borrow less: While it’s tempting to take out a larger, unsecured loan and spend the surplus on extra features or accessories, remember that the larger loan amount transfers to more interest accruing.
Opt for a residual balloon payment: This is an arrangement where you pay off a big chunk of the loan at the very end, which helps your monthly payments stay low.
Play around with the loan term: Lengthening the loan term makes for smaller monthly payments, but more interest paid overall. You may be able to find a happy medium between monthly payment size and the total interest you’ll pay.
What do I need to apply for a car loan?
Since a car loan is a complicated financial transaction, there are several documents you may need to submit with the application. Lenders will want to see:
Driver licence, passport, birth certificate, Medicare card, or non-citizen ID like a student or work visa.
Proof of income and employment
Payslips, bank statements, tax returns, and any information about supplemental income like pensions or allowances.
Assets and liabilities
Shares, cash savings, bonds, and property holdings are assets; credit card debt and other outstanding loans are liabilities.
Registration, engine number, purchase agreement, year/make/model, and vehicle identification number.
How can I get cheap car finance with bad credit?
A bad credit score does not automatically block you from applying for car loans. However, getting the cheapest car loans will become more difficult since lenders will view you as a high-risk borrower. Bad credit car loans come with higher interest rates and fees.
To get the best car loans with bad credit, go into the process with realistic expectations and aim for a more modest car. Other ways to help your case include being honest and upfront in your application, saving up money for a larger deposit, demonstrating stable employment, and paying off prior debts.
Further Readings on Car Loans
Whether it’s your first time buying a car or you’ve bought many vehicles before, there’s a lot about car loans that you might still not know. Our team has worked hard to provide explanations and guidance on a number of important vehicle finance topics. Whatever type of vehicle you need, MNY’s research can help reveal new tricks of the trade and ensure you always get the very best deal.
Car Loans for Bad Credit
If you think your bad credit keeps you from getting affordable vehicle financing, think again. There are many ways of accessing car loans even without a strong credit history. This article outlines the types of bad credit car loans, how to become eligible for them, and how to boost your credit score.
Bikers, we didn’t forget about you! While many car loan tricks and tips can also apply to motorcycles, there are several special elements of a motorbike loan that are important to learn about. This article covers the ways in which bikers can access affordable motorcycle loans.
Campervans and trailers are a unique vehicle marketplace with their own category of specialised loans. Understanding the different types of caravan loans can be a major asset when shopping for a motorhome. Our article presents a useful guide for caravan finance and instructions for comparing loan options.
Boats aren’t quite the same as cars, but as any boat enthusiast will tell you, buying and maintaining a boat takes a lot of money. Boat loans are enormously useful, both for the initial boat purchase as well as for ongoing upkeep expenses. This article offers an in-depth overview of boat financing.
Car Loan Interest Rates
When it comes to car loans, the devil is in the details—and that means that interest rates matter quite a bit. Learning how to snag the best rates can go a long way to saving you a lot of money. This article helps you understand the ins and outs of car loan interest and the factors that will affect your rates.
Business Car Loans
For companies big and small looking to expand their vehicle fleet, a business car loan can be extremely useful. It’s also helpful to learn how these loans differ from personal vehicle loans. This article teaches you about the various benefits that your company can enjoy with a business car loan.
Chattel mortgages are a common type of business vehicle loan, and can serve as a powerful financial tool for growing companies. This article explains how chattel mortgages work from start to finish, and how they could help you and your company afford new vehicle purchases without breaking the budget.
Trucks are an expensive purchase, which is why so many people smartly take advantage of truck loan offers. When buying a truck, you should know what loan options are out there. This article also describes the different requirements for obtaining truck financing and what you’ll need before applying for a loan.
If your employer offers alternative salary packaging, it’s worth looking into the benefits of a novated lease. This arrangement minimises your tax burden and empowers you to afford both new and used vehicles. This article provides a guide for how employer-sponsored vehicle leases are set up.
Petrol costs holding you back? Buying a more fuel-efficient car could be the solution. Many different vehicles are sold which conserve fuel in various ways, based on their purpose and function for the driver. This article introduces you to the world of fuel-efficient vehicles and the easiest way to afford one.
New vs Used Cars
The age-old dilemma: do you buy a new or used car? Both options have a long list of advantages and disadvantages, so staying informed on the financial particulars will be extremely helpful for making the right choice. This article serves as a guide for deciding between a new and used vehicle.
Car Loan Repayment Calculator
With so many things to keep in mind about car loans, it’s hard to find the bottom line. Our car loan repayment calculator boils your loan offer down to the essentials, and helps you easily see what you’d be paying on a prospective loan. This article explains how to use the calculator to find the best loan deal.
Fuel Cards in Australia
From a family of four to a massive corporation, anybody can benefit from using fuel cards for their vehicle expenses. These are a great tool to keep track of your budget for petrol or even basic vehicle maintenance and repairs. This article describes the pros and cons of fuel cards and how to find the right one.
What to Know Before Buying a Boat
Buying a boat can be a lot more complicated than most people realise. To make sure that you’re prepared, it helps to have a guide for each step of the process. This way you won’t have any unpleasant and expensive surprises. This article describes all the important things you should know for buying a boat.
Cost of Owning a Caravan
Having a caravan is a great way to travel in comfort, but it can be pricey if you don’t plan your budget in advance. There are a lot of auxiliary costs that are involved with the vehicle, some of which might be a surprise and can quickly ratchet up the price tag. This article outlines all the relevant costs for you.
1% Car Finance
Car loan costs stack up fast, especially if you have a higher interest rate. One way to save money is to find low-interest car loans via 1% dealer promotions. However, these deals often come with a catch and might not be as useful as they first appear. This article teaches you how to find the best 1% car finance.
Caravan Buying Guide
Many Australians would love to buy a caravan and travel, but if you’ve never had one before, you might not know where to start. Caravans come in all shapes and sizes, and the costs vary immensely. This article will teach you how to identify your top priorities for a future caravan purchase and make them a reality.
Cost of Electric Cars in Australia
Electric vehicles have grown more and more popular in the last 10 years, and while they’re still more expensive than ordinary petrol cars, they are becoming more affordable. This article describes the different types of EVs as well as what each state government is doing to support their advancement.
Car Loan Refinancing
If your car loan has become too expensive, it’s worth doing the research to see if you can get a better deal. Refinancing your loan can save you thousands of dollars over the entire loan term. Learn about the advantages and disadvantages of refinancing and what common pitfalls to avoid.
Low Doc Car Loans
For self-employed individuals, freelancers, contractors, and other small business owners, business vehicle loans may require too many documents they simply don’t have. See how a low documentation car loan can be a great fit for applicants needing to access business vehicle financing.
Car loans in Australia FAQ
Driving home the point on getting the best car loans
Finding the best car loans can be stressful and confusing, but it doesn’t have to be! Once you master the basics of car finance, you’ll be armed with the strategies you need to access the cheapest car loans and get a great deal on your purchase. Be sure to shop around and examine your options, and don’t be afraid to ask for details—this is your money on the line!