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There's no single loan that's best for everyone as all our needs are different - and what's best for you might not be best for someone else.
In this guide, you'll learn:
A lender will advance you up to 100% of the funds needed to buy a new car. Car loans are a specialised personal loan. Secured car loans use the vehicle you purchase as security against the finance. The upside of using your vehicle as collateral is lenders can offer you a more competitive interest rate. In short, it'll save you hundreds, if not thousands of dollars, over the loan term.
Alternatively, unsecured car loans have fewer conditions attached to how you spend the money and which vehicle you can buy. Car loans are available from finance brokers, credit unions, banks and car dealerships (through in-house or partner financing).
Lenders offer new car loans between $2,000 right up $250,000. You can choose to repay a loan over one to seven years. However, the amount you can borrow is dependent on your eligibility and takes into account things like your credit history and current financial standing.
Here's a secret to finding your best car loan. The perfect loan would:
If you can tick all those boxes, on paper, you're on the way to finding the best car loan for your situation.
You might also decide that you want a loan with a redraw option. If you've repaid more than you need to and are ahead on your car loan, some lenders will let you borrow the extra back.
If you're self-employed, you might want to consider low documentation car loans (low doc car loans).
Most commonly, you don't have the money to pay for the car outright.
In reality, there are dozens of reasons you may choose to take out a car loan. You might prefer to break the cost of a new car down into manageable monthly amounts. Or, you might have noticed there's a surplus in your budget each month, which could be put towards on replacing your aging car. Then again, maybe your mechanic has told you it is no longer cost-effective to keep repairing your current car, as it requires major work to fix.
Taking out a car loan means you can get the exact vehicle you want, without having to spend years stashing away money to build up your savings. Speaking of savings, they can stay where they are in the bank, untouched.
It also means you could go for a higher specification model than you would otherwise be able to afford if you were purchasing a car outright.
The car loans comparison table above shows several vehicle finance examples. How do you weigh each one up to pick the best car loan that fits your circumstances? Ask yourself these questions:
| Amount borrowed | Loan Term | Interest paid | Difference |
|---|---|---|---|
| $30,000 | 3 years | $2,369 | |
| $30,000 | 5 years | $3,968 | +$1,599 |
| $30,000 | 7 years | $5,617 | +$3,248 |
The more you can afford to repay each month, the shorter the car loan term you can select, potentially saving you thousands of dollars in interest as a result.
On the flip side, paying a loan over a longer period means lower repayments, because it spreads out the cost. You need to balance affordability with the cost of borrowing.
The true cost of a car loan depends on five things:
That's before you have to include things like registration (rego), car insurance, vehicle maintenance, fuel, roadside assistance, CTP, depreciation and servicing costs.
If you think you have found the best car loan for your situation, you can use our car loan monthly repayment calculator to see how much a loan will cost.
When it comes to making your money go as far as possible, every single cent counts. Here's how to rack up the savings on your new or used car purchase.
As you may have seen above, there are thousands of dollars in savings to be found between a three year and a seven-year car loan. Make sure you pick the right loan period so that you hit that sweet spot between affordability and the amount of money you pay out in interest.
Make sure you compare all of your loan options. If you can find a loan without any on-going service fees, you could save between $180 and $297, across a three year car loan. Likewise, if you find a loan without an application fee, you'll save from $200 to $700! If you add in savings from a loan with a low rate of interest, you could be looking at thousands of dollars in your pocket!
Opting for a secured car loan will give you a far more competitive interest rate versus an unsecured car loan.
Being savvy and shopping around can save you thousands of dollars on a new car. Shop around during the EOFY sales, when manufacturers slash considerable sums from the driveaway prices of new cars. If you can bag a runout model, again, you could net yourself substantial savings. You might also be able to grab online-only offers and that's before you begin negotiating with the dealer.
You might have your heart set on a specific model, but being open to dropping down the trim grades one or two notches could save you anywhere from a few thousand dollars to $70,000+, depending on the car manufacturer. Also, don't go mad on the options list, you can add ten grand (or more!) onto some cars with just a few ticks of a box.
Having credit enquiries on your file isn't necessarily bad, but having too many could impact on your credit score! Make sure no hard credit checks are taking place, as these can get listed on your credit report. Remember not to enquire with too many separate lenders.
If a lender sees you have a very robust financial position (liabilities subtracted from your assets), they may offer you a lower interest rate. So list your assets, even on secured car loans, to unlock those cheaper rates.
There are many benefits to buying a car with a loan.
In Australia, the main money lenders offering car loans are:
There are pros and cons to each lender type, so do your due diligence, researching which car loan provider is best suited to you and your unique circumstances.
Here are the general (not guaranteed, as each lender is different) pros and cons
| Lender | Pros | Cons |
|---|---|---|
| Bank/Financial institution |
|
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| Car finance brokers |
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| Dealership finance |
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First, you need to be:
Next, you'll need to gather:
Then, follow the instructions on your car loan provider's website, or the application form.
If you're buying a used car, or from a private seller, there are additional considerations you need to be aware of. Check out our used car buying tips.
What's the TL;DR? Car loans are:
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