A secondhand car is a great option that can help you save. Find out how you can finance your purchase.
A pre-owned vehicle can make a good choice if you need a first, or next car. You can get a good deal because you're not buying it brand new and there are can be more room to negotiate if it's a private sale. If you don't have the full amount ready to make your purchase, you have a range of financing options available to consider.
Read our used car loans guide below and find out all the options available to you.
Used car loan rate comparison
The finder.com.au list of best used car loans
Compare the features of the car loans below before applying.
|Buy your next used car with a loan from CUA|
|Flexible repayment options for your next used car|
|Get a used card with a Natloans Car Loan - bad credit accessible.|
Your quick guide to used car loans
A used car loan is a loan is a financing option that can help you purchase a pre-owned vehicle. Lenders and financial institutions impose certain restrictions on the age of a vehicle in order to qualify for a loan amount. For example, some financial institutions only grant a loan for cars that are two to five years old.
Keep in mind that the interest rate on a used car loan is generally higher than on a new car loan as your the quality of the vehicle is less assured.
Used car loans are secured, so you'll need to provide details of the vehicle when you apply. The lender may be able to offer you pre-approval for the loan so you can secure the financing before you actually find your car. Once you've been approved for the loan, you agree to repay to repay it within a specified period known as a "loan term" or "term period".
This period varies between lenders but it's usually between one and seven years, or one and five years for fixed rate loans. You may be able to make additional payments during this time, and depending on the loan, you may be able to pay it off early without penalty. The lender may also give you access to a redraw facility to redraw your additional repayments. If no additional repayments are made, you pay off the loan by the specified due date.
How old a car can I finance with a used car loan?
If you want to use your used car as security for the loan, each brand has different criteria. Here are the age limits for some of the lenders you can compare in the table above:
|Lender||Loan||Maximum age of car||Loan amount||Find out more|
|ANZ||ANZ Online Secured Car Loan||7 years||From $7,500||Details|
|Beyond Bank||Low Rate Car Loan||6 years||From $5,000||Details|
|Beyond Bank||Flexi Car Loan||Over 6 years||From $5,000||Details|
|CUA||Fixed Rate Car Loan||2-7 years||From $1,000||Details|
|IMB||Secured Personal Loan||6 years||$2,000 to $60,000||Details|
|NRMA||NRMA Car Loan||No set limit||$15,000 to $100,000||Details|
|RACV||RACV Car Loan||10 years||$15,000 to $100,000||Details|
|St.George||Secured Personal Loan||12 years at loan expiry||$3,000 to $80,000||Details|
|Suncorp||Secured Car Loan||12 years at loan expiry||$5,000 to $80,000||Details|
|Westpac||Secured Car Loan||7 years||$10,000 to $100,000||Details|
Can I get a car loan cheaper than dealership finance?
If you've ever seen an ad for dealership finance, one thing you'll notice is the low-interest rates. Often as low as 2% p.a., these low-interest deals can be tempting, but keep in mind low ongoing repayments do not automatically mean a cheaper loan. Take a look at the following features of both the loan and the dealership finance offer to find out which one is the better deal:
- Interest rate. Dealership finance generally has lower interest rates, falling around the 2% p.a. mark, while car loans have rates around 6.5% - 13% p.a.
- Residual payments. Car loans do not require any residual (balloon) payments but dealership finance deals will. These payments depend on the price of the car, but are usually a couple of thousand dollars at the very least. Dealership financiers usually make their money from people refinancing these payments.
- The price of the car. If you get your financing from the same dealership as you get your car you need to consider whether it's affecting the price of your vehicle. Sometimes, dealerships offering good financing deals cannot give as good a deal on the price of your vehicle. It pays to negotiate the price before securing your finance.
- Extras. This should not affect the price of the actual finance amount, but be wary of extras such as insurance of extended warranty offered with your finance deal. Consider what the value is of these offers.
Finding the right finance: Three steps to compare
Securing the right finance is as important as finding the right car. Some car loan terms extend up to seven years, so it can be with you a long time. Here's what to look at to find the right finance:
- Interest rate. The rate of interest offered by lenders should be the first thing you should consider when you plan to find a used car loan. Interest rates can be higher on used car loans compared to new car loans. Compare your options to find the most competitively priced and packaged loan.
- Fees. Lenders can charge a range of fees on used car loans. These include early termination fees, administration fees, loan management fee and many other fees. Keep these in mind and review all the fees you can and might be charged.
- Flexibility. Find out how flexible your loan can be. Can you make additional and lump-sum payments during your loan term? Are you able to repay your loan early without penalty? If you do make additional repayments, can you get these back using a redraw facility, and are there any restrictions regarding this facility?
The types of used car loans available to you
There are usually two types of used car loans, a secured loan and an unsecured used car loan.
- Secured car loan. In the case of a secured car loan, you are required to offer your personal possession or asset, such as your car, as a security to the lenders. One of the main advantages of secured car loan is that you are required to pay a lower rate of interest because your car works as a collateral against the loan amount. However, it's important to always read the terms and conditions to see if you can use your used car as collateral, as some lenders often have restrictions to this.
- Unsecured car loan. An unsecured car loan is a loan against which no asset is offered as a security. Instead, you can qualify for a loan by showing the details of your savings or the details of your previous loan that you paid off successfully. You can also qualify for the loan if you show your credit card repayment details. You are required to pay a higher rate of interest on unsecured used car loans as compared to interest rates on secured loans because no asset is provided as a collateral to lenders. However, it comes with an advantage because a borrower does not have any fear of losing his asset if he is unable to meet the repayment requirements.
- Home equity finance. If you've accumulated enough equity in your home loan, some lenders will allow you to access that equity. You can then use these funds to purchase your used car. Some lenders will also let you borrow more so you can repay your loan at the same interest rate as your home loan.
- Dealership finance. When you're shopping for a car you will see a lot of dealership financed deals advertised and they are another option to consider. This financing works by you paying low interest and repayments for the majority of your term and then a balloon payment, usually a few thousand dollars, at the end of the term. Make sure you find out all the details of the finance before you apply.
What are the benefits and drawbacks to consider?
- You can get a great price on a used car by negotiating in a private sale or at a dealership
- You have various financing options to consider – secured and unsecured.
- Used car financing can be more expensive and restrictive than financing for new cars
- The age of the used car affects its resale value – you can make a loss if the car sells at an amount less than the loan
Is there anything you should avoid?
- Whenever you apply for a used car loan, it is important to read all the terms and conditions. There may be restrictions on the vehicle or the loan that you were not aware of that will make it unsuitable for you, and its up to you to review all this before you sign on the dotted line. It's also important you are aware of all fees and charges that may and may not apply to your account.
A used car can be a better option when you're looking for your next set of wheels – make sure you get the right financing.