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How new car loans work
The majority of new car loan products are secured loans, meaning the lender has the right to repossess the vehicle if you default on your loan. While this is a steep price to pay, it also means you get a lower interest rate. Getting a new car loan doesn't mean you have to buy a car from a dealership – the majority of lenders will accept a vehicle up to two years old from a second-hand car dealer or a private sale.
When you apply, you and your car will need to pass the eligibility criteria. Depending on how strict the lender is, you may need to use the entire loan amount on the car, although some lenders may allow you to borrow some extra money to cover the costs that come with buying a new car. You will need to repay the loan over the pre-agreed loan term.
Types of new car loans
Secured car loan With a secured car loan, the bank is able to use the new car as security. That means it has a registered interest in the car and can repossess it if you default on your payments. The interest rate is lower than the rate you would get with an unsecured loan because a lender views it as less risky.
Unsecured car loan An unsecured car loan works a little differently, as the bank or loan company does not hold the new car you are purchasing or any of your assets as security. If you fail to make your personal loan repayments, the bank has little power to do anything about it, except send reminders. When you've consistently lapsed on repayments, it will send a debt collector to try and obtain the money. Your assets are safe, but the lender could take you to court. In response to the increased risk taken on by the lender, the interest rates are raised when compared with a secured loan.
Bad credit car loan If your credit report isn't quite as stellar as you'd like and you still want a new car, you should consider a bad credit secured car loan. These loans come with a higher interest rate due to the increased risk factor.
What is the difference between fixed and variable new car loans?
Variable rate car loans
A variable rate means the interest rate will fluctuate (according to the Reserve Bank of Australia's cash rate), while a fixed rate remains the same for the length of the loan's term. The variable rate might be cheaper now, but it can and will fluctuate with the market interest rates. This means your repayments might increase if the rates go up. Your payments may also come down if the rates start to fall.
Fixed rate car loans
By comparison, a fixed rate loan might initially be a bit higher than the variable rate, but you know that your repayments won't change throughout the loan term. If the rates increase over the next few years, it is possible that the fixed rate may end up being lower than the resulting variable rate.
How to compare new car loans
Check interest rates Compare interest rates and find the lowest option. Your interest rate will be personalised according to your credit history.
Watch out for fees Car loan application and monthly service fees can cost you hundreds of dollars.
Look for a loan with money-saving features You can get out of debt faster and save money with a loan that lets you make penalty-free extra repayments. A redraw facility lets you pull out those extra repayments to spend in an emergency.
Choose a suitable loan length Also known as loan term, this is how many years it will take to pay off your loan. A longer loan term makes your monthly payments cheaper, but you’ll pay more interest all up.
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Despite its few quirks, the blend of soothing features, reliable power and generous space make a compelling case for those seeking comfort.
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The McLaren 750S sits in the market like a bespoke tailored suit among off-the-rack outfits: eye-wateringly expensive for many, but in the realm of supercars, it's competitively priced.
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Controversial EV tax struck down, here's what it means for motorists
Finder not only helps you find and compare new car loans, but we also have vehicle comparisons. If you still aren't sure about which car you are going to purchase, read our car reviews and compare models against each other.
The benefits and drawbacks of a new car loan
It fills your coffers so you can buy a new car.
It spreads the cost over several years.
New cars are generally easier to finance, so you could find a lender without fuss.
You get a new vehicle, benefiting from improved safety equipment, fuel efficiency, technology and passenger comforts.
The price of the car is often higher than the resale value of the car. This is because all car loans attracts interest and new cars can lose market value quickly, through depreciation.
Things to look out for with new car loanse
Once you have decided to take out a new car finance, it is essential that you work out all the costs associated with the car loan. The obvious things are the interest rates but there are other charges too. These may vary depending on the lender.
Fixed interest rates are common among car loan companies and they will not change throughout the loan period. If you choose a variable interest rate, the loan provider could alter the interest rate at any time depending on the Reserve Bank rates.
You should negotiate early repayment fees and redraw fees with the loan provider just in case your situation changes during the loan period.
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Despite its few quirks, the blend of soothing features, reliable power and generous space make a compelling case for those seeking comfort.
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Does the CUPRA Born show us that an electric future can be just as thrilling, just as fun, and just as worthy of our admiration?
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Can a French wagon be as comfortable in the heart of the outback as it is in the city?
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The previous Toyota 86 was a charming little thing, but when you put your foot down, it was like asking for a bit more horsepower from a Shetland pony.
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Whether you're looking for a daily driver or a serious off-roading machine, there's likely an Amarok to suit your needs.
While CTP insurance is a legal requirement in Australia, taking out additional comprehensive or third party cover is highly recommended. Avoiding additional car insurance could mean unforeseen expenses if you were ever involved in an accident, even if it was not your fault. Our extensive car insurance guide will give you all the information you might need about insurance, its types, costs and more. You'll also be able to compare insurance providers and get quotes side by side.
Some car loan brokers let you put down a deposit. If you can afford to put down 5-20% of the car loan value, you'll have to borrow less. Lenders calculate the risk you present using the loan-to-value ratio (LVR). Lowering your loan amount, compared with the value of the vehicle, can help tip things in your favour.
As you're taking on some of the risk of the loan, a lender might offer you a more competitive interest rate. In the long run, if you crunch the numbers, this should save you money. As an added bonus, you'll have lower monthly repayment amounts.
There are a few times a year when you can grab a bargain on a new car.
First, if a car is due a facelift as part of its product cycle – right when the new model arrives on the forecourt is a good time to purchase the runout car. If you can live with the older spec, you could save thousands of dollars. Sometimes, car makers raid the parts bin, adding extra tech and equipment to create limited edition, runout models.
During end of financial year promos, car dealers run massive campaigns to sell off older stock. At this time, models with a previous year's build date or ex-demonstrator vehicles have thousands knocked off. Last year, the biggest saving we found was $36,910 off a BMW 6340i M Sport. The end of a calendar year might also be a good time, or early in the new year.
Also, the end of each month might see car dealers hustling to meet their targets and more inclined to strike a juicy deal.
If you want to buy from a dealer, knowing the exact amount you can borrow and how much it'll cost per month is a real ace up your sleeve.
A pre-approved car loan is the answer.
Speaking generally, dealerships advertise more attractive interest rates. However, the financing division usually requires a residual or balloon payment. With these types of deals, you have to stump up a considerable sum, into the tens of thousands on higher-end models. Yes, the interest rate looks good, but with the balloon payment factored in, it is off-putting for many to pay this last sum off.
On the other hand, the car dealer will handle all the paperwork. The application process is probably a little more streamlined. Dealers might also consider financing you even if you have a bad credit history.
Opt for a loan from a broker though and you'll likely get finance with no dealer markup. Plus, you can go for pre-approval, meaning you have more power when negotiating with the car salesperson. You have to do a bit more legwork yourself, but many view the advantages of this route as outweighing the downsides.
You may still be eligible for a loan from a bank or a short-term loan provider. Please take a look at our guide on personal loans for pensioners.
Generally, to be eligible for a car loan, you'll need to:
Be 18 or older
Have a regular, verifiable income
Be a permanent resident of Australia, or possess an appropriate visa
Have an acceptable credit history
You need to gather up some documents. A lender might want to see:
Some finance agreements let you set a balloon payment.
This payment is a final lump sum that clears the loan, right at the end of the finance term. The benefit is lower monthly repayments, but the downside is you need to find a hefty sum of money to settle the loan.
Find out more about car loan balloon payments.
You can apply over the phone or online. For most lenders, it takes up to 10 minutes. Some are quicker though.
All you need to do is click the link in our car loans comparison table to visit the site of each respective lender.
Ben Gribbin is an automotive writer at Finder. He is a life-long car enthusiast, bringing many years of experience working with and writing about cars. During his time, Ben has been a freelance writer, editor and reviewer for a number of leading publications across the UK. He was voted the Guild of Motoring Writers Breakthrough Blogger in 2015.
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