Cheap car loans
With rates starting from just 3.74% p.a., a cheap car loan is a click away.
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Finding cheap car loans
There isn't a catch-all cheap car loan that suits every borrower. And while lower interest rates make your loan cheaper, there's more to a cheap car loan. Watch out for fees and future rate changes and keep in mind that the type of car you want will influence the cost.
Cheap car loan repayments and details
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What type of car are you looking for?
The type and age of the car will influence the cost of your car loan. Here's what to look out for:
New cars
Interest rates for new cars are usually lower because they're classified as lower risk. This is because new cars are likely to retain a fair amount of their value for the loan term. Using the car as collateral also makes the loan cheaper. In some cases, lenders may consider any car under 2 years as new, depending on the number of kilometers on the odometer.
Used cars
Given that the value of the car will reduce over the loan term, used cars may be considered at higher risk from a lender's perspective. This means higher interest rates for used car loans. You can secure the loan with the car, but there may be restrictions based on the age of the car. For example, the used car should be between 2 and 5 years old at the time of application and no older than 10 years at the end of the loan term.
Older cars
With cars older than 5 years, the lender is unlikely to use the vehicle as security. In this case, you may have to opt for an unsecured personal loan instead. This type of loan is more expensive as it's riskier for the lender, resulting in higher interest rates. On the other hand, the lender can't repossess the vehicle in case you default.
What are the different types of car loans?
- Secured car loan. The vehicle you buy is used as collateral for a secured loan. This makes the loan cheaper, but if you default, the lender can repossess the vehicle to cover its loss.
- Unsecured car loan. An unsecured loan does not require an asset as collateral. However, it's more expensive as it's riskier for lenders.
- Variable rate car loan. Your loan can come with either a variable or fixed rate. With variable rates, your interest rate can either increase or decrease on a monthly basis, making it harder to predict and budget for.
- Fixed rate car loan. Fixed rate loans have a fixed interest rate, so your repayments stay the same for the duration of the loan. While it's easy to budget, it's often higher than variable rate loans.
- Chattel mortgage.If you own a business or are self-employed, you can use a chattel mortgage to purchase a car, provided it's used mainly for business purposes. A car lease is another option available to business owners and those who are self-employed.
- Car hire purchase. Your repayments reduce the balance owing on the purchase price of the car. The lender owns the car for the duration of the agreement, with ownership transferred after the final payment is made.
When the cheapest interest rate isn't the cheapest car loan
Some loans come with lower interest rates than others, but they aren't always the cheapest. This is because of other costs that you need to account for apart from interest, including establishment and ongoing account fees. These fees can add to the cost of your loan and at times outweigh the benefits of a lower rate. You should also consider whether there are any restrictions and fees for extra repayments and early exit.
Example 1
Amir is buying a car for $35,000 and applying for a car loan of $25,000 after the trade-in of his old vehicle. He's shopped around and found a cheap car loan with an interest rate of 8.5% with Bank A. The rate offered by Bank B was 9%, so Amir dismissed it for being too high.
But Amir didn't look into the other fees and charges that apply. He planned to make extra payments each month but didn't realise he'd pay an early repayment fee if he pays off his loan sooner than the 5-year loan term.
Amir also didn't check how much the establishment fees or monthly account fees were. Overall, the loan from Bank A costs an extra $1,287 – so the loan with the slightly higher rate ends up being the cheaper option.
| Description | Bank A | Bank B |
| Loan amount | $25,000 | $25,000 |
| Interest rate | 8.5% | 9% |
| Loan term | 5 years | 5 years |
| Monthly account fee | $10 | None |
| Monthly repayment | $522.91 (includes monthly fee) | $518.96 |
| Establishment fee | $600 | $100 |
| Early repayment fee | $550 | None |
| Total amount paid | $32,524.80 | $31,237.53 |
* This is a fictional, but realistic, example.
How to get a cheaper car loan
Your lender may advertise its rates, but it's always possible to negotiate. Here's what you can do:
- Shop around. Comparing loans is easier than ever. You'll get a good idea of the rates offered by a range of lenders. This gives you ammunition when negotiating or may help you land a better deal with another lender entirely.
- Negotiate with your lender. If you're keen on staying with your lender, your comparison information can come in handy. If you make it clear you'll go where the loan is cheaper, the lender may be inclined to give you a lower rate.
- Check out car dealership finance. With finance from a car dealership, you have room to negotiate on rates. Dealerships often receive loans at discount rates, giving them room to bump up the rate. The margin between what they pay lenders and what you pay forms its "trail" commission. With some haggling, you could bring it down by as much as 2% of what they initially quoted.
- Look for package deals. Some lenders offer a discount on their advertised rates if you have other banking products with them. If you already have a mortgage, a credit card and a transaction account with a bank, ask if they'll give you a discount on your car loan if you add that to your package.
- Borrow less. The more you borrow, the more interest you'll have to pay. The opposite is also true. Consider how you can reduce how much you borrow. You could offer a trade-in of your old vehicle or pay a larger deposit from your savings.
- Opt for a residual balloon payment. With loans where you have to pay a residual balloon payment at the end of the term, you can reduce your monthly repayments. For instance, for a $30,000 loan with a $10,000 residual balloon payment, you'll have to repay $20,000 plus interest on $30,000. This means your monthly repayments will be less, making it easier on your budget. Make sure you can make the balloon payment in the first place and that it's covered by the trade-in value of the vehicle at that time.
- Consider a longer loan term. With a longer loan term, the amount you owe is staggered over a longer period. This means your monthly repayments will be lower. It will also mean you're in debt and paying interest for a longer period.
What you will need for your application
Here are some of the information and documentation you may need to provide when applying for your cheap car loan:
- Identification documents. Some lenders may only ask for your driver's licence, but you may also have to supply your birth certificate, passport or Medicare card.
- Income verification. Proof of income in the form of recent payslips or tax returns may be required. If you're self-employed, you may need to provide tax assessment notices for the past 2 years, a current profit and loss statement and a business activity statement.
- Employer's details. Include your employer's contact information and details of your current role and any previous roles over the last 3–5 years. The lender wants to see that you've maintained a steady job.
- Savings history. You may need to show evidence of savings. You can provide a few months' worth of bank statements showing your income and savings.
Considerations when comparing car loans
- Interest rate. The interest rate is what the lender will charge you for borrowing. Comparing interest rates is a good way to check if the loan is competitive.
- Fees and comparison rate. These include establishment fees and ongoing monthly or annual fees. Establishment fees can range from $100 to more than $600. Monthly account keeping fees can range from $5 to $15 per month. If you apply through a car dealership, you may also have to pay a brokerage fee. These fees add to the cost of your loan and are important to consider. Fees and interest charges are included in the comparison rate, which is an indication of the true cost of the loan.
- Affordability. Your car loan should be, above all, affordable and should fit comfortably within your budget. You should be able to make minimum repayments on your current income and budget.
- Insurance requirements. The lender may require your vehicle to be fully insured until the loan is repaid in full.
- Loan term. Car loan terms can range from 1 to 7 years. Shorter terms mean higher monthly repayments but will reduce how much you pay in interest. Longer terms mean lower monthly repayments but you'll be in debt for longer and pay more in interest.
- Extra features. These can include free extra repayments and early repayments. Making extra repayments can help you pay down the loan faster. With no fees for early repayments, you can pay off the loan before the end of the loan term.
Car loan approval process in Australia
✍ Fill out an application form online using the lender's online portal. You can also fill out the form in person at the bank branch or at the car dealership.
🖨️ Once you've applied, your application will be reviewed by a credit officer. You should receive conditional approval almost immediately if everything is in order.
🔎 During the final stage of approval, you may be contacted for more information or documentation to support your application. This can include your ID, payslips, income verification and bank statements.
✅ Once the loan has been approved, you'll have to sign the loan contract. The lender will then transfer the money to your account, which you can use to purchase your car.
People also ask...
How much can I borrow on a car loan?
Your income and current liabilities as well as the specific loan you apply for determine the amount you're able to borrow for a car loan. The minimum amount you can apply for is usually about $1,000, although the maximum depends heavily on your income and ability to meet your repayment obligations.
Can I get a pre-approval for a cheap car loan?
Yes. A car loan pre-approval is a great way to work out how much you can comfortably borrow and what your repayments will be before you head out car shopping.
How long does it take to get an approval?
The approval process for car loans is usually very quick. In most cases, you should get a conditional approval in a couple of hours. You should receive your final approval on the next day after submitting your application.
Can I include the insurance and on-road costs in my loan amount?
Some lenders will allow you to include the costs of your car insurance premium and other costs associated with the purchase into your loan amount. Always ask to be sure if this applies to your loan type.
Do I need a deposit for a cheap car loan?
Some lenders will allow you to borrow the entire purchase price of your car. This depends on the strength of your financial situation and your credit history.
Can I make extra repayments on my car loan?
This will depend entirely on the lender you choose and the type of car loan you want. Some loans will charge you an early repayment fee for making extra repayments. Others won't. You can find a list of car loans that allow early exit and extra repayments here.
How do I make extra payments on my loan?
Most lenders will allow you to make additional repayments in a variety of ways. You can choose to make a payment directly into your loan account using BPAY, transfer funds electronically from your regular transaction account over to your loan account or nominate to have each payment taken out at an agreed amount as part of your direct debit agreement. For example, if your minimum repayment is $387.50 per month, you might nominate to have your direct debit payments set to pay $400 per month instead.
How is the interest calculated on my loan?
Interest is calculated on your outstanding loan balance on a daily basis and charged to your account monthly in arrears.
Can I buy a car privately or do I have to buy through a dealer?
You are able to buy your car through a private seller if you wish. You will need to provide details about the car to the lender, such as registration number and vehicle identification number (VIN) for the loan to proceed.
Does applying for a car loan affect my credit report?
Any enquiries you make for any form of credit will be entered onto your credit report as an enquiry with that lender. Our guide to car loan credit checks explains this further.
Should I choose a balloon payment at the end of my car loan?
A balloon payment lets you reduce your monthly repayments throughout the term of the loan and then you need to pay off the lump sum amount still owing at the end. You can read more about balloon payments on car loans in our guide.
Will I still owe the bank money if it repossesses my car?
In the event that you stop making your car loan repayments, the lender may choose to repossess your car. It will sell it in an attempt to get some of its money back along with covering any repossession fees it was charged. If the sale price of the car doesn't fully cover those costs or pay off your outstanding loan amount entirely, then you may still need to repay the bank for the remaining amounts owed.
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