Find out how to drive away with a better rate.
Before you sign on the dotted line with the car loan your bank is offering, compare your options from a wide range of brands. There are some incredibly cheap car loans out there, and they key to finding the right one is picking the loan type to suit your financial needs.
Find out what you need to know to compare car loans and pick the right option for you.
- No monthly fees
- No early repayment fees
- Borrow up to $75,000
100% confidential application
IMB New Car Loan
Apply for IMB New Car Loan and enjoy a great low fixed interest rate with no ongoing fees.
- Interest rate from: 5.99% p.a.
- Comparison rate: 6.34% p.a.
- Interest rate type: Fixed
- Application fee: $250
- Minimum loan amount: $2,000
- Maximum loan amount: $75,000
Compare car loans & calculate your repayments with the table below
What do you want to learn about?
Guide to car loans
- How a car loan works
- What types of car loans are available
- What to check before you apply
How do car loans work?
Car loans can work differently depending on what type of loan you take out and what kind of car you're looking to purchase. Generally, the following steps will apply:
- You apply for finance. Once you've chosen your car finance you need to submit your application. Unsecured loans will only require your personal and financial details, but secured loans will also need information about the car.
- The lender approves your loan. Car finance approvals can happen on the same day or they may take up to 10 days. You may also be able to receive conditional approval, whereby you will be told how much you are likely eligible for so you can go car shopping knowing how much you have to spend.
- The car is purchased using the funds. This can be handled a few different ways. If you're buying a car in a private sale, your lender may be able to pay the seller directly or give you a cheque to pay it yourself. If you're purchasing from a dealership the lender will usually pay them directly. Unsecured loans will require you to arrange the payment yourself.
What types of car loans are there?
There are a wide variety of car financing options out there, and there are features that differentiate those options.
Secured personal loan
With a secured car loan, the vehicle you buy is used as collateral security for the loan. The lender has the right to repossess your vehicle if you default on your loan. As this type of loan is less of a risk to the lender, the rates for secured loans will usually be lower.
Unsecured personal loan
With unsecured car loans, the lender doesn't use any of your assets as security for the loan. This means they have no asset to repossess if you stop making your loan repayments. These loans come with higher interest rates but you also have more flexibility with the way you use your loan.
If you're self-employed and purchasing a car primarily for business use, you can consider a chattel mortgage. The lender you apply with takes out a "mortgage" over your car while you make monthly payments towards the vehicle. Once it is paid in full the mortgage is removed and you own the car outright. Don't forget the Australian Government $20,000 tax break, too.
Car hire purchase
Self-employed borrowers also have the option of financing a car using a car hire purchase option. Every repayment made towards a car hire purchase agreement reduces the balance owing on the purchase price of the car.
If you're a self-employed borrower, it's important you discuss the different car finance and financing options with an accountant before making a decision.
A novated lease can be an option for employees who are able to make an arrangement with their employers. Essentially, the lender purchases the car and your employer makes the lease payments on the vehicle out of your before-tax salary. This can potentially help reduce your taxable income, resulting in you paying less tax overall.
At the end of the novated lease term you have the option of purchasing the vehicle outright for an agreed upon sum, or giving that one back and upgrading to a different car, where you'll enter into a new lease agreement.
For the self-employed, a car lease can also be used to buy a car for business purposes. The lender purchases the vehicle and you make regular lease payments until the end of the agreement.
A commercial car lease may give you the option to purchase the car at the end of the lease term at a reduced price or you can choose to give the car back and enter into a new lease agreement for a different vehicle.
Compare car loans by looking at the following
Before you apply for any loan, it's always a good idea to check as much as you can about the offer you're getting. Here are some things you need to look for before you proceed.
- The interest rate
The interest rate charged on your car finance will play a part in how much your repayments will be. Always know what rate you're being offered and take the time to compare car loans from other lenders to be sure the offer is competitive.
- The actual loan term
Car loans can be set over loan terms as short as one year or up to as long as seven years. Some lenders, usually dealership finance providers, will give you a set loan term which comes with a balloon payment at the end of it. Check if your repayments will pay off your loan or if you'll need to cover more at the end.
- How your repayments will work
Ask how often you need to make repayments, how you make them and check if you're able to make extra repayments or repay your loan early without penalty.
- What fees you will be charged
There are lenders that charge a monthly account fee or administration fee on their car loans. This can range anywhere from $5 per month up to $15 per month, depending on the type of car finance you're applying for. Establishment fees, usually between $100 and $600, can also be charged.
- If the lender requires insurance
As the lender will be using your car as collateral security for your loan, they may insist that the vehicle is properly insured at all times until the loan is fully repaid.
Tips for a better car finance
- Making sure you get the cheapest car loan
- How to get a lower rate
- Ways you can reduce your repayments
When the cheapest interest rate isn't the cheapest car loan
When most people go hunting for the cheapest car loan, they immediately look for a low interest rate car loan and believe they're getting a great deal. Unfortunately, it is possible for the car finance with the cheapest rate to end up costing you more over the term of the loan if you're not careful.
How the cheapest rate could cost you more:
Consider a car that costs $25,000. One lender is offering a rate of 8% p.a. over five years and another is offering a rate of 9% p.a. The only difference is the fees. Take a look at how much it could cost you by just opting for the cheapest rate:
|Lender A||Lender B|
|Interest rate||8% p.a.||9% p.a.|
|Loan term||5 years||5 years|
|Monthly account fee||$20||$0|
|Total monthly cost||$532.91||$518.96|
|Total repayment amount||$32,275||$31, 588|
In the above example, the interest rate that was higher turned out to be the cheaper option. This was despite the initial upfront cost.
Make sure you consider all costs before you apply for a car loan and use a comparison rate calculator to determine your repayments.
How to get a lower interest rate
- Be aware of interest rates in the market
If you take the time to compare car loans on finder.com.au, you'll get a strong idea of what interest rates are available from a range of lenders. This gives you plenty of ammunition when it comes to negotiating with your own lender.
- See if you can negotiate a price with the seller
If you're keen to stay with your own bank or credit union for your car finance needs, take your interest rate information with you when you make your enquiries. This will encourage the lending officer to see if there is any room to take a few extra points off the interest rate they offer you.
- Take out car dealership finance
When you apply for a loan through the finance officer at a car dealership, you have lots of room to negotiate on rates. This is because the dealership often receives their loans at discounted rates, leaving them some extra room to bump up the rate you pay. That margin between what they pay to the lender and you pay to them forms their 'trail' commission. In other words, every time you make a payment, some of it goes towards paying interest to the lender and some goes to paying commission to the car dealership. Haggle and negotiate on the rates you're offered through the car dealership. They usually have around 2% that they can drop from the initial rate they may have quoted you.
- Can you get a package deal?
Some banks will offer a discount off their advertised interest rates if you also have other banking products with them. If you already have a mortgage, a credit card and a transaction account with one bank, ask if they will give you a discount on your car finance if you add that to your package.
Ways you can reduce your monthly repayments
It's always possible to reduce the payments you make on your car finance each month. The key is to ensure that you're not paying more than you really should over the entire term of the loan. Here are some ways you can reduce your minimum monthly payments.
- Borrow less
It might sound obvious, but it's true. If you can borrow even a little bit less on your loan amount you'll end up paying less on your monthly repayments. Borrowing $5,000 over a five-year loan term adds up to $1,000 per year extra you have to pay back, plus the interest charged on that amount as well. This adds up to approximately $90 per month out of your pocket.
- Consider a residual balloon payment
When you apply for car finance that has a residual balloon payment remaining at the end of the term, you can drastically reduce your monthly repayments. For example, if you borrow $30,000 and you leave a $10,000 residual balloon payment to be paid at the end of the loan term, your repayments will be calculated based on the $20,000 to be repaid over five years, plus interest on the entire $30,000. Keep in mind you'll need to cover this cost at the end of the term, or refinance it with the lender.
- Opt for a longer loan term
When you choose a longer loan term, the amount you're required to pay each month is reduced. Unfortunately, the lender also gets to charge you interest on your debt for a longer period of time, so you could end up paying far more in interest over the term of the loan.
How to apply for a car loan
- What you need to apply
- Car loan eligibility
- The car loan approval process in Australia
What you'll need to apply
Below is a checklist of some of the information and documentation you may need to supply for your car loan application.
- Driver's licence OR
- Passport OR
- Birth certificate
- Medicare card may be required as additional documentation
Income and employment
- Three recent payslips
- Two years of tax returns (if self-employed)
- Your after-tax income
- Employment information and employer's contact details
Assets and liabilities
- Details of properties or large assets (such as a car) you own
- Your ongoing expenses
- Credit card or store card limits
- Details of loans or overdrafts
Details of the car
- The make, model, year and colour of the car
- Vehicle Identification Number (VIN) or Chasis number
- Engine number
- Registration number
- Purchase price
The car loan approval process in Australia
Getting your car loan approval might seem quick, but there are several stages your application needs to progress through before your money is released to the seller of the car.
Step One. To get the approval process started, you will need to fill out and sign an application form. This can be done in person at the bank branch or at the car dealership, or alternatively, can be filled out using the lender's online application form on the website.
Step Two. Once your application has been received, it's reviewed by a credit officer. If everything is in order, you should receive your conditional approval almost immediately.
Step Three. The Final Approval stage is where the lender may request you to supply any documentation to support your application. This includes your identification, payslips or income verification, bank statements and any other pertinent information required.
Step Four. Once your final approval has been received, you'll be asked to sign your loan documentation. This is your agreement with the bank to repay the amount of money you're borrowing over a specified loan term at an agreed interest rate.
Step Five. The lender will fund your loan. This can happen in a number of ways: If your loan is secured it will usually be paid directly to the person/dealer you're buying the car from or the funds will be given to you as a cheque. If it's unsecured you will usually receive the funds directly and be responsible for purchasing the car.
Questions you may, or may not, have had about car loans
If you still haven't found what you are looking for, we're confident you'll find it below.
Can anyone apply for a car loan?
Yes, if you meet the eligibility requirements. As long as you are older than 18, you're a permanent resident of Australia and you can verify that you earn a steady income you may be able to qualify.
How much can I borrow on a car loan?
The amount you're able to borrow is determined based on your income and current liabilities. There may also be minimum car loan amounts set by individual lenders. Lenders usually offer between $5,000 and $80,000 if the loan is secured.
Can I get a pre-approval for a car loan?
Yes. Pre-approval is a great way to work out how much you can comfortably borrow and what your repayments will be before you head out car shopping.
How long does it take to get an approval?
The approval process for car loans is usually very quick. In most cases you should get a conditional approval in a couple of hours, but it may take longer depending on the lender.
Can I include the insurance and on-road costs in my loan amount?
Some lenders will allow you to include the costs of your car insurance premium and other costs associated with the purchase in your loan amount. Always ask to be sure this applies to your loan type.
Are there any types of cars I can't buy with my loan type?
Some lenders will place restrictions on the age of vehicles and even some restrictions on some makes and models of cars. If you're in doubt with the car you want to buy, take the time to ask your lender some questions about whether it will be suitable for them to use as security for your loan.
Do I need a deposit for a car loan?
Some lenders will allow you to borrow the entire purchase price of your car. This will depend heavily on the strength of your financial situation and your credit history.
How do I make payments to my loan?
Your repayments can be made automatically via direct debit on a weekly, fortnightly or monthly basis with most lenders. This is where an amount of money is debited from your regular transaction account each month to cover your payment. Some lenders will also allow you to make your payments via BPAY if you prefer.
Can I make extra repayments off my car loan?
This will depend entirely on the lender you choose and the type of car loan you want. Some loans will charge you an early repayment fee for making extra repayments. Others won't. It's always a good idea to check whether this fee will apply to your loan before you proceed with the application.
How is the interest calculated on my loan?
Interest is calculated on your outstanding loan balance on a daily basis and charged to your account monthly in arrears.
Can I buy a car privately or do I have to buy through a dealer?
You are able to buy your car through a private seller if you wish. You will need to provide details about the car to the lender, such as registration number and vehicle identification number (VIN) for the loan to proceed.
Does applying for a car loan affect my credit report?
Any enquiries you make for any form of credit will be entered onto your credit report as an enquiry with that lender. If your application is declined and you end up submitting another application elsewhere, your report will show two enquiries.
I've got bad credit. Can I still apply for a car loan?
Many banks may decline a car loan application from a borrower with a bad credit history. However, there are some lenders out there willing to let you borrow money even with bad credit. You may want to discuss your application with a car finance specialist before you proceed. This will help you to locate the appropriate lenders to help with your situation and improve your chances of getting your loan approved. These loans will generally be secured against the car in the case of default.
Should I choose a balloon payment at the end of my car loan?
A balloon payment is a residual amount of money that needs to be repaid at the end of the loan term. This type of loan lets you reduce your monthly repayments throughout the term of the loan and then you need to pay off the lump sum amount still owing at the end. You might choose to sell the car to pay off the lump sum amount due or trade it in on another vehicle and refinance that residual amount into your new loan.
Will I still owe the bank money if they repossess my car?
In the event that you stop making your car loan repayments, the lender may choose to repossess your car. They will sell it in an attempt to get some of their money back along with covering any repossession fees they were charged. If the sale price of the car doesn't fully cover those costs or pay off your outstanding loan amount entirely, then you may still need to repay the bank for the remaining amounts owed.
Remember that a car loan can be a large financial commitment - so remember to do your due diligence and compare a wide range of options before applying