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    Getting the best car finance deal in Australia

    The best car loans in Australia start from around 6% p.a for borrowers with excellent credit. These are generally secured car loans for brand new or almost new vehicles and are offered by non-bank lenders and mutuals. The major banks don’t generally offer the best car finance deals.

    The very cheapest car loan rates are often available for electric cars (green loans).

    According to MNY research, some of the providers consistently offering the best car loan deals in Australia are:

    • Harmoney
    • Now Finance
    • Great Southern Bank
    • Liberty Financial
    • Our Money Market (OMM)
    The average cost of a new car in Australia is around $50,000 (according to analysis by Drive) and finding the best car loan deal possible for a purchase of that size will save you a considerable amount of money. Our analysis shows a saving of $1,416 on a car loan with a rate of 6%, versus one at 7% (based on a five year loan term).

    How to compare car loans

    The three main factors to consider when comparing car loan deals: the age of the car, the type of car finance you want, and the features you can get with it.

    Age of car

    • New car finance

      This generally includes any car under two years old but the age limit varies by lender. New car loans come with lower interest rates and are ideal as collateral, since the lender knows that the car will likely retain a high resale value.

    • Used car finance

      For older vehicles (between two and five years old) some lenders offer a specific used car loan. To be eligible, the car will need to be less than 10-12 years old at the end of the loan period, depending on the lender.

    • Older car finance

      This usually covers any vehicle over 5 years old, since this can rarely serve as collateral. For an older car purchase, it’s easiest to get an unsecured personal loan.

    Common car loan types

    • Secured car loan

      The vehicle will serve as collateral, which allows the lender to take it back and sell it if you cannot make the payments. Secured loans are lower-risk for the lender, making them cheaper for you.

    • Unsecured car loan

      With an unsecured car loan, there is no collateral. This means if you cannot repay the loan there is no asset that the lender can reclaim to cover its costs. Unsecured loans can be used for any purpose (making them flexible) but they are riskier for lenders and more expensive as a result.

    • Dealer finance

      This involves the car dealership acting as an intermediary and setting up the loan for you. Dealer finance can appear cheap but, but it’s important to read the T&Cs carefully so you’re aware of the full actual cost.

    • Green car loan

      For eco-friendly vehicles such as electrics, hybrids, and fuel-efficient cars. These often come at a dicounted rate.

    • A chattel mortgage

      Works the same as a standard secured car loan, but is primarily used for business vehicle purchases rather than personal vehicles.

    What car loan features should you look at?

    • The interest rate  affects how much you’ll have to pay back on top of the loan amount. It could be fixed (set at the start of the loan term) or variable (potentially fluctuating with the market).

    • The comparison rate includes most of the loan fees and charges on top of the base interest rate. This is a truer estimate of the cost of the car loan per year.

    • The loan term is the time period over which the loan needs to be repaid. The longer the term, the lower each payment will be, but you’ll end up paying more interest overall.

    • 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 , including the option to have a balloon payment (large, one-off final repayment on the loan which lowers the regular payments), making extra repayments, repaying early, or redrawing extra repayments you’ve made.

    Use our car loan calculator to figure out your exact repayments based on different loan amount, terms and rates.

    Top tips for getting the cheapest car loan

    There are two main approaches to making car finance more affordable. One is to get the best car loan 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.

    Ways to reduce your regular car loan payments

    • Borrow less: While it’s tempting to take out a larger loan on a more expensive vehicle (or an unsecured loan for greater than the vehicle purchase price with the surplus spent on features and accessories for your car) remember a bigger loan will cost you more.

    • Contribute a deposit: This is another way of borrowing less, without necessarily needing to sacrifice on getting the exact car you want.

    • Opt for a 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. It won’t necessarily mean you pay less overall, however.

    • Play around with the loan term: Lengthening the loan term makes for smaller monthly payments, but more interest paid overall. Look for a happy medium between monthly payment size and the total interest you’ll pay.

    What do I need to apply for a car loan?

    There are several documents you may need to submit with your car loan application. Lenders will want to see:

    • Identification

      Driver licence, passport, 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

    • Proof of assets and liabilities

      Shares, cash savings, bonds, and property holdings are examples of 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 saving up money for a larger deposit, demonstrating stable employment, and paying off other debts before applying.

    Read more about car loans

    Whatever type of vehicle you need, MNY’s research and guides can help reveal tips and insights to help you get the very best deal on your car loan.

    Car loans in Australia FAQ

    What is a car loan and how do they work?
    A car loan is a type of personal loan that’s used for a vehicle purchase. Car loans are used by both businesses and individuals, and the money can be spent on a new or used vehicle. Usually, the loan can fund 100% of the vehicle cost, but in some cases the borrower pays a deposit up front. You repay the loan in regular instalments, along with interest and fees accrued.
    How much can I borrow with 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.
    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 the loan-to-value ratio on a car loan?
    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% deposit, that means your loan covers the 80% remaining and your LVR is 80%.
    How does 0% interest car finance compare to other offers?
    These deals sound enticing, but beware: 0% interest rate promotions are generally only temporary offers, reverting to a much higher rate once the offer expires.
    Can I get a car loan in Australia without a licence?
    This varies based on the state or territory you’re in and the lender you apply with, but you may still be able to buy a vehicle with finance and register it without a licence e 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 doesn’t have to be stressful or confusing! 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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