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.
    Secured loans are lower-risk for the lender, making them cheaper for you, while unsecured loans are the opposite.

    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.

    • Dealer finance

      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:

    • Identification

      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.

    • Vehicle details

      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 in Australia FAQ

    How much can I borrow on a car loan?
    Your maximum loan amount is based on your current income and debts. Loans usually range between $5,000 and $200,000 but average around $30,000.
    Will I still owe the bank money if they repossess my car?
    Possibly. If the lender takes back the car, they will resell it. Then, if their proceeds weren’t enough to cover the outstanding cost of your loan, you may have to repay the remainder.
    Can I refinance a car loan?
    Yes, refinancing is an option if you want to switch from your old lender to a new lender. In this case, you’ll use the new loan to pay off the old loan, and then you’ll start making payments to the new lender.
    What is a loan-to-value ratio?
    This is the percentage of the car’s purchase price you are having to cover with a loan. For instance, if you had a 20% down payment, that means your loan covers the 80% remaining and your LVR is 80%.
    What is a no credit check car loan?
    This loan type is meant for borrowers with weak credit histories, and comes with higher rates and interest fees. The lender will also want a larger deposit upfront.
    How does 0% interest car finance compare to other offers?
    These deals sound enticing, but beware: 0% interest rate promotions almost always start with a higher initial purchase price on the car. Their rate will also likely revert to some higher percentage after a brief period.
    Can I get a car loan in Australia without a licence?
    This varies based on the state or territory, but you may be able to buy and register the vehicle as long as you have an alternate form of government ID. Make sure to bring along someone with a valid licence so that they can drive the car home for you.

    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!

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