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.
What is a used car loan?
A used car loan is a secured loan product that uses the vehicle you're purchasing as security and in return, you get a competitive interest rate. These loans operate in much the same was as a secured car loan.
Read our used car loans guide below and find out all the options available to you.
How does a used car loan work?
With a used car loan you can either apply for your loan first and get pre-approval so you know how much money you have to spend on a vehicle, or you can find the vehicle you want to purchase and then apply for your loan. Either way, the lender will need all the vehicle's details before you can be fully approved.
You can usually apply for a loan of between $2,000 and $70,000 and will have between one and seven years to repay. Lenders will have restrictions on the type of car you can finance, for example, you may not be able to finance a vehicle which will be over 12 years old at the end of the loan term.
Repayment flexibility differs between lenders but you are normally able to select weekly, fortnightly or monthly repayments. You may be able to pay off your car loan early without penalty or make additional payments without additional fees.
If you are approved for the loan the lender may prefer to pay the car seller directly or may send the funds to you to pay the seller. Discuss this with your lender before you apply.
List of used car loans available in Australia
IMB Secured Personal Loan: 6.8% p.a. comparison rate. A car loan with a competitive rate that allows you to finance a used vehicle up to 5 years old.
RACV Personal Loan: 7.19% p.a. comparison rate. A personal loan that allows you to finance a used vehicle up to 7 years old.
There are usually two types of used car loans, a secured loan and an unsecured used car loan.
Secured car loan. These loans offer the most competitive rates as you are required to offer your car as security for the loan. Check that your used car will be eligible to be used as security and remember that it's likely you'll only be able to borrow as much as the value of the vehicle.
Unsecured car loan. If your vehicle doesn't qualify as security for a lender or you want to borrow additional funds for something else, you might want to consider an unsecured car loan is a loan. These loans come with slightly higher rates but also more flexibility in how you use the 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.
How do I compare used car loans?
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 interest rate should be the first thing you should consider when you are comparing used car loans. Compare loans with similar features to ensure you get a competitive rate and make sure you look at the comparison rate as well as it includes fees as well as interest.
Fees. Lenders can charge a range of fees on used car loans. These can include upfront fees such as application fees, ongoing fees such as monthly and annual fees and penalties such as early repayment fees.
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?
Frequently asked questions about used car loans
Should I buy a car that's under finance?
You can read our guide on whether buying a car under finance is a good option or not. Generally, there is nothing wrong in buying a financed car but you'll need to be cautious and do a bit of due diligence before committing.
Can I check the safety ratings of a used car?
Yes, you can. The Australasian New Car Assessment Program (ANCAP) rates cars from 1 to 5 in terms of safety. Read our comprehensive guide, check your car's safety rating and learn what it means.
How do I inspect a used car?
When you inspect a used car or go for a test drive, an exhaustive used car buyer's checklist will help you decide. Some of the things that you'll need to check are the car's interiors, exteriors as well as how smoothly it drives.
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Matt Corke is Finder's head of publishing for rest of world and New Zealand. He previously worked as the publisher for credit cards, home loans, personal loans and credit scores. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates.
You'll receive a fixed or variable rate depending on the lender you are approved with Apply for up to $250,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.
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