Used Car Loans Australia

Looking at how you can finance the purchase of a used car? You might want to consider getting a used car loan. This guide will help you understand everything you need to know about buying a second-hand car with used car finance.

What is a used car loan?

Used car loans come in two main types: secured and unsecured. With secured car loans, the vehicle you purchase is held as collateral against the finance. As a result, lenders will offer a more competitive interest rate – which can help save you money. With unsecured car loans, you have more freedom on how you spend the money and no collateral is taken but as there is more risk for the lender, you will get a higher rate.

How do used car loans work?

A used car loan is a straightforward agreement between you and a lender. They'll advance you up to $100,000 to put towards the purchase price of a second-hand car and you pay them back according to a pre-agreed schedule. After the final used car loan payment clears, the car is 100% yours.

How can a bank reposes a car?

With a Secured used car loans, your chosen lender registers a security interest with the Personal Property Securities Register. In the event you fail to meet the loan repayment schedule, they can claim possession of the car and recoup their losses. With less risk involved, the lender will give you more competitive interest rates.

Unlike new car loans, there are vehicle age requirements applied to used car loans.

How does it work with an unsecured used car loan?

With an unsecured loan, you don't need to offer your used car as security and there are less age and value conditions your car needs to meet. You're also free to spend money on related costs like rego, CTP or modifications, as well as unrelated expenses.

Lenders give you the option to pay back the loan over terms between one and seven years.

3 used car finance options and their differences

What type of finance is available for purchasing a used car?

• Secured loan. Certain vehicles, under a few years old, may qualify for this type of loan, which usually offers the most competitive interest rates.
• Unsecured car loan. These loans have higher interest rates, but fewer restrictions attached to them.
• Dealership finance. Car dealers will likely offer some attractive used car loan rates with their chosen finance partner. However, often these agreements are subject to hefty deposits and balloon payments, which require you to make a final payment of several thousand dollars. This way, the repayments are smaller and seem cheaper.

What age car can I buy with a used car loan?

It depends on the lender and the type of loan you're taking out. If it's a secured car loan, the finance company is looking to make sure they always have a plan B. That way, if you breach your contract or suddenly stop making repayments, the company is legally able to reclaim the car and sell it, to offset their losses.

That means, they'll require that the car being purchased is under seven years old. Generally, they tend to be looking for the car to be no older than 12 years by the end of the loan period.

Here's a table of the maximum ages of cars accepted by different loan providers.

Pros and cons of buying a used car

How to find the perfect used car loan

Here's what you need to consider when shopping for a used car loan:

• Interest rate. Generally speaking, you want as low an interest rate as possible. The lower this number, the more you'll save. The difference can be quite stark. Suppose you want to borrow $10,000 over 3 years to purchase a second-hand car. If you took out a loan with an interest rate of 4.5%, the loan would cost you $709 in interest. If the used car loan rate was 7%, you'd pay $1,116 in interest, a difference of $407. Due to the potential risk of a used car failing prematurely, used car loan rates will likely be higher.
• Payment flexibility. It's always nice if a loan fits in with your budget. If you get paid weekly, you'll no doubt prefer a used car loan lender that offers weekly repayment schedules. If you're paid monthly, you're probably more used to making larger payments, 12 times a year.
• Loan term. The longer you borrow the money over, the more potential risk and the more you'll spend in interest. On the flip side, the repayments will be smaller, as the cost is spread across a longer period. For example, a used car loan interest rate of 4.5% over 3 years costs $709 in interest, with monthly repayments of $297. Over 5 years, the monthly payments are just $186, but the amount paid in interest jumps to $1,186, or a $477 difference. Deciding on how long to take out your used car loan comes down to balancing affordability and expenses.
• Charges and fees. Many loans require application fees, which can vary from $200 to $800. Other loans may charge a service fee, which could be as much as $10. As a result, you need to factor in these costs. A loan with a $10 monthly service fee, over 3 years will cost you $360. However, if the loan has a low application charge, it could still work out as the most cost-effective solution for you.
• Vehicle criteria. This seems obvious, but you'll want to pick a lender that's prepared to offer you a used car loan for the age and model of vehicle you're looking at.
• Pre-approval. This is a big one if you're buying a used car. Conditional pre-approval means you know how big a loan you can get. This puts you in a great place when haggling.
• Early payment fees. It's nice to have options like the ability to pay back your used car loan early, without termination fee penalties (for example, if you traded your old car in for another and want to clear the outstanding balance, or you come into some money).
• Other features. A redraw facility, where you can claim back any money you've overpaid, might be useful.

Are there any restrictions on borrowing for a used car?

This is a common question and the simple answer is that: Yes! You can use a car loan for a second hand car.

Most lenders will let you borrow money to finance either a new or used car, provided you meet their lending criteria. The requirements can vary depending on the lender and the type of loan, with both secured and unsecured car loans available.

Generally, the only instance in which you may not be able to get a car loan for a used car is if you're applying for a secured car loan. With a secured car loan, the car you buy is used as security against the cost of the loan. In the event that you do not repay the loan, the lender make take ownership of the vehicle.

Some lenders will only offer secured car loans to those looking to buy a new car, but most will also allow you to get a used car, provided the car is not over a certain age. The vehicle age restriction will vary by lender, so if you're planning on buying a used car, you should check it meets the specific age requirements of the lender before applying for a loan.

In comparison, an unsecured car loan doesn't require the vehicle as security. This means you can use the funds to pay for a new or used car without the vehicle requirements you would have with a secured loan.

Used car buying money-saving tips

As well as shopping around for a great used car loan deal, you can save yourself even more money with these tips.

Consider less popular brands and models

The bestselling new cars will almost certainly become popular used car models. As a result, sellers can set their prices accordingly. Rather than getting fixated on one brand or model and trim, be open to rival models. You'll benefit in several ways. First, car manufacturers that are trying to compete with a sought-after and established marque might introduce longer warranties, better standard specifications and even drop prices. You could swoop in and take advantage of this by purchasing the rival brand on the used car market.

To save money, buy privately

Used car dealers are a middle party. Yes, they might offer attractive things like short-term warranties, but in reality, they can add a couple of grand onto a car's sticker price to cover their costs.

If you have a car enthusiast friend or family member, take them along to a private sale and you could end up with a much cheaper used car. If you don't know a car expert, consider paying for a pre-purchase inspection, which can help you avoid buying a lemon.

Haggle

Some people hate haggling, it makes them cringe. Most second-hand car dealers and private sellers will expect you to at least try. Some may even mark their car up a little, with the expectation that buyers will try to knock them down. Remember, this is a business transaction, so stay friendly and emotionally detached from the car.

Haggling doesn't have to become a verbal slanging match. You can be polite and negotiate – sometimes even being a bit cheeky might get you some money slashed off the deal. If you smile while you're doing it, that goes a long way. A common technique for bartering is to simply point out things you're not happy with, for example the tyres are heavily worn and need replacing, the windscreen is scratched or there are stone chips in the paint. If you are sincere and genuine, a lot of sellers will relent and meet you halfway. Spend some time researching the car model; find out if it needs any major scheduled work soon like timing chain/belt replacements or complete fluid renewals.

Phrase things in a positive way. Instead of saying "I want some money off", try asking "How much money are you willing to knock off?".

Equip yourself to haggle like a pro by looking up the market values of the car you're viewing. This can be done on sites like redbook.com.au. That should help you cut through the chancers who are trying to flip a car by buying it, giving it a valet and selling it on.

Never, ever let the seller know your budget. Also, remember that a lot of private sellers need to sell their car. They might have bought a new one and are currently paying for two vehicles!

If you're buying from a used car dealer, it helps to know the prices of similar or exact models on sale by their competitors. Then you can say "Company X is doing this car for this amount, can you match it?" Some people suggest even printing out the sales listing to show them.

The most powerful negotiation technique is always being prepared to walk away. Sometimes, you'll get a call later and suddenly the seller can meet your offer. If something's not right about the car or the seller, cut your losses and move onto the next prospective used car.

Above everything else, stay calm and never rush into things!

Consider a previous generation model

If the car you're after has recently received a facelift or been replaced with an updated model, the previous generation might drop in value. That means you can cash in by purchasing the older car.

Step down a trim level or two

It's tempting to want every creature comfort on offer in a used car, but if you're willing to step down a trim grade or two, you can save hundreds, if not thousands of dollars.

Be flexible on the odometer

You might see a used car that's covered thousands of kilometres more than a similarly aged vehicle. Don't discount the higher mileage model outright, because modern engines work better when up to full operating temperatures.

Around town driving, with short intermittent runs, the car doesn't always get up to temp. Plus, those urban roads are covered in potholes that really hammer the car's suspension and bushes.

If a car has covered 20,000km, but this was all around town, while another has done 50,000km (with a lot of motorway driving and excellent maintenance), then the higher clock reading car should be cheaper and potentially be in just as good (if not better) mechanical condition.

Which used car should I buy?

There are hundreds of different models on the used car market, so you might find things overwhelming.

Here's how to narrow the decision down.

Body style

The first and most important decision is, what kind of vehicle are you looking for? Each have their own merits and downsides.

Car body type	Pros	Cons
Light car	Great for new and young drivers Easy to handle and park Ideal for cities and towns Extremely economical	Limited rear passenger space Small boots Small engines have to work hard on motorways
Small car	Great for new and young drivers Still easy to park and drive Decent in towns and metro areas Very economical Hot hatch versions available Hybrids and electrics available Practical boot size for everyday living Sedan or hatch variants on offer Some luxury models on offer	Some models have cramped second row of seats Boot might not be big enough for family trips
Medium car	Offers a great all-round practicality Decent size for families of four Luxury models on offer Electric and hybrid models available Should be comfortable for four adults, five at a push Wagon models have impressive boots	Less economical than smaller vehicles Not great for large families
Large car	Plenty of room for up to five adults Many luxury models available Practical size for carrying, especially as a wagon Optimum comfort for long-distance driving	Less economical Market dominated by higher-end models Cumbersome around town
Sports car	Fun weekend toy, with the option for daily driving for a couple Soft-tops available Fast and exciting Prestigious brands Thrilling looks	Boots vary widely but aren't typically generous Seating for four is usually a big ask Can be low to ground, not great over speed humps Firm suspension can be jarring
Small SUV	Extremely popular, with plenty of choices Some hybrid models and a few electrics Practical all-rounders Higher up seating position Proportions can mean more interior room Economy has improved over the years Easier to get in than lower cars Still usable around the city	Not as much room as larger models Fuel economy might not be as good as a smaller car Handling might not be as sorted as cars
Medium SUV	Great all-rounder Electric and hybrids available Reasonable for towing Seven seater models available Good for families Prestige models available	Third row seats could be short on space Less economical Larger body might be more clunky in town
Large SUV	Electric models and hybrids available Good for towing trailers Some off-road capable models Larger interiors Seating for up to eight Luxury models available Lots of passenger comforts Some rugged, ute-based models Large boots	Less economical Cumbersome size for multi-storey and tight car parks
People mover	Seats for up to nine Sliding doors on some models make entry and exiting easier Higher up seating position Doubles up as a van Highly practical	Large, van-like proportions not great for street parking Smaller used market
Utility	Large payloads Great for business Hard-wearing Off-road capability High towing capacity Seats up to five Premium interior models available High seating position Practical	Beefy engine and boxy shape not great for fuel economy Cargo space needs securing Restricted interior storage Higher maintenance requirements
Van	Large, covered cargo space Decent payloads Solid towing capacity Ideal for tradies Crew cabs available with five seats Can be converted into a temporary or permanent camper Lots of bodywork for advertising	Panel van has limited visibility Economy not amazing, but not as bad as a full-size truck Often have workhorse spec interiors

Petrol, diesel, hybrid or electric?

Once you've nailed down the type of car you're considering, you need to think about what kind of fuel source you're looking for.

Petrol cars are plentiful, they're becoming more efficient and petrol is cheaper to buy at the pump. Petrol cars are ideal for those who live in towns and cities, where the diesel engine is not able to perform high operating temperature pollution-filter cleaning processes.

Diesel cars are more fuel-efficient overall, with generally higher levels of torque which make them hard-working. Sports and performance cars tend to be petrol-powered, and you have to (or just feel the need to) rev the engine hard, making for a sporty exhaust howl and exhilarating ride.

If you've never driven a diesel, you should at least try one. Many motorists say they'll never go back to petrol.

Hybrid models typically have a petrol engine, with an on-board system that either recoups lost energy or powers the vehicle over limited distances using electric motors.

Electric models are entirely powered by motors and batteries. The range of the cars is increasing at an astounding rate thanks to leaps in technology. You can charge an electric at public charging stations or at home using a standard plug. Electric cars are impressively torquey, making them great fun to zip around in.

Brand, warranty and features

Once you've nailed down the body and fuel type you want, you can start to think about the brands you like the look of. Many buyers make their decision based on how a car looks, which is important, but you should also ensure the vehicle has a decent warranty and features you like.

Reliability

This is a big one – the reliability of a car is hugely important. As you're buying a used model, you can do a deep dive online and find out all the common problems a prospective model suffers. There will also be user reviews and readability studies/surveys available, so you can make an educated choice.

Used car loans frequently asked questions

• Should I buy a car that's under finance?

  We've written an entire guide covering the topic of whether to buy a car under finance (known as an encumbered car). Though there's nothing wrong with buying a second-hand car that's financed, you need to be extra cautious and make sure you do your due diligence before buying.

• Are used cars safe?

  You're probably familiar with the ANCAP crash testing and rating scheme in Australia. These star ratings are for new vehicles. For used cars, you'll want to refer to the Used Car Safety Ratings, or USCRs. These are published over at howsafeisyourcar.com.au. Bear in mind that the condition of the vehicle's bodywork and mechanical components plays a big part in its crash safety. Also, the level of corrosion is a key factor. Don't forget to check for any outstanding recalls on the vehicle make, model and build year.

• How do I inspect a used car?

  In short, very closely. Don't take the seller's word as gospel. Prove to yourself the car is in sound condition and working order. To help, we've created a used car buying guide checklist.

• Are used cars reliable?

  It depends not only on the model, but also on how well it's been maintained and how hard the car has been driven. One unique thing about buying a used car is that time has passed since the launch and a lot of the common mechanical faults have been discovered. You can check for these online and also read verified owner reviews.

• I've previously declared bankruptcy; can I get a used car loan?

  Some lenders are open to considering a person who has previously petitioned for bankruptcy. Check out our loans for bankrupts guide.

• I'm a student and want a used car loan

  If you need to buy a car and you're a student, see if you're eligible by visiting our student car loans page.

• I'm self-employed and want to purchase a used vehicle

  If you need to buy a car or commercial vehicle for your business, you'll want to check out low-doc car loans and business vehicle finance.

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