How to Choose the Right Car Loan

Information verified correct on October 29th, 2016

Don’t get overwhelmed when choosing a car loan, follow our simple guide and choose the right loan for you.

So you’ve decided to buy a car on finance, but how do you know the right car loan to choose? Maybe you’ve started researching and found yourself overrun with words like redraw, unsecured, variable rate, or chattel mortgage. In most cases this loan might be with you for a number of years, its important to choose the right one. This guide will take you through how cars loans work, what types of loans you have available to you, and how to pick the best option for your needs and situation.

how do car loans work?

How do car loans work?

Car loans are similar to personal loans in that you’re able to borrow a set amount of money and pay it back over time. The difference is that these loans are specifically designed to finance the purchase of a vehicle. Car loans are usually used to finance new cars, although some lenders allow you to purchase a used car if it’s relatively new, meaning that it was made in the last five or so years.

Types of car loans

There are a few options to consider when looking at car loans, and it’s important to understand the difference between them so you can choose the right one.

  • Secured car loan. This type of financing option requires you to use your newly-purchased car as a guarantee for the lender in case you default on the loan. These loans usually come with relatively low rates, flexible repayment options, and as a fixed or variable rate option.
  • Unsecured car loan. This type of loan can be used to finance a car, or any other purchase, as the way you use the loan amount isn’t restricted. These loans generally have higher rates than as the bank is taking on a greater risk. This is due to the fact that you don’t have to supply a guarantee. These loans can also be used to finance a used car purchase.
  • Dealer finance. This is the type of loan that is offered by a car dealership. The interest rate on these loans may be higher than other loans with banks or third-party lenders, but people opt for these because the ongoing repayments are lower. This is because at the end of the loan you are required to pay a ‘balloon payment’ which covers a certain percentage of the premium, usually ranging from 0% to 60%
  • Chattel Mortgage. This type of loan is a business loan that allows you to buy a car. It works by the lender giving you the loan amount and then them taking out a ‘mortgage’ over the car. At the end of the loan term and once the car is paid off, you will have ownership of the vehicle. Chattel Mortgages also offer balloon payments to reduce ongoing repayments, and the loan is designed for self-employed people or owners of companies.

How to choose the right car loan

Finding the right car loan doesn’t have to be difficult. After, or even before you’ve found the car you want to buy, here are some steps to follow to make sure you choose the best loan for you.

Decide how much you can afford.

This is arguably the most important question you need to ask yourself. Just like you wouldn’t buy a car that was out of your price range, you wouldn’t apply for a car loan with excessive fees or rates that will make you struggle to meet your repayments. Sit down and work out how much you can afford to put towards the loan per week or per month, and make sure that number is manageable. While it may seem a good idea to make large regular repayments to pay off your loan early, you could find yourself struggling financially due to the added cost.

Understand your budget

After you decide you much you can afford, you need to work out how your budget works. If you’re self-employed or are paid irregularly, you may prefer a loan that offers flexible repayment options, such as being able to make additional repayments to help you reduce ongoing interest. Only you know how your budget works and the type of repayment structure that will work best for you.

Work out what’s available to you

You may not be able to access all of the loans you are considering. People with bad credit or those who are on lower incomes may not be approved for certain loans from banks and other lenders. If you think you fall into this category you may need consider lenders who will approve loans for those with bad credit. Take a look at the lender’s eligibility criteria before you apply as each loan application will be listed on your credit file, and multiple applications within a short space of time may look irresponsible to prospective lenders.

How much do you need to borrow?

The amount you need to borrow may also affect the loans you are able to access. Most lenders have a set minimum or maximum amount that they will let you borrow, so you need to ensure that the loan amount you need falls within their allowable limits.

Decide on fixed or variable

Depending on the type of loan you decide to take out, you may have a choice between fixed or variable rates. Fixed rates are set for the life of the loan and don’t change, so you always know what your repayments will be. Variable rates may change over the course of the loan to respond to market changes, so you may be able to take advantage of lower rates but you also may be subjected to higher rates.

How flexible do you want your loan to be?

Some car loans are more flexible than others, but you need to decide what kind of flexibility you need. For instance, some lenders offer flexible repayment options that can help you pay your loan back early, such as being able to make additional repayments. Other lenders may allow you to use the loan amount to make other purchases when you use the car as security. Remember to check whether you will need to pay extra to take advantage of these benefits.

Do you want any additional features?

Lenders may also offer some additional features to borrowers, such as a redraw facility. This allows you to redraw any additional repayments you’ve made should you need to. When comparing your options, take note of some of the features offered by lenders and see if they are of any interest.

Beyond Bank Low Rate Car Loan

Car Loan Offer

Apply for Beyond Bank Car Loan and enjoy a great low fixed interest rate with no ongoing fees. You'll also get access to a limited time 'Special Offer' rate on your loan.

  • Interest Rate From: 5.69% p.a.
  • Comparison Rate: 5.97% p.a.
  • Interest Rate Type: Fixed
  • Application Fee: $175
  • Minimum Loan Term: 1 year
  • Maximum Loan Term: 7 year
  • Minimum Loan Amount: $25,000

Car loan comparisons

Rates last updated October 29th, 2016
Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment
Beyond Bank Low Rate Car Loan
A great rate for cars under 2 years old.
From 5.69% (fixed) 5.97% $25,000 1 to 7 years $175 Go to site More
CUA Fixed Rate Car Loan
A competitive car loan that offers flexible repayment options and no account keeping fees.
From 7.99% (fixed) 8.29% $15,000 1 to 7 years $120 Go to site More
RACV Car Loans
Enjoy this fixed rate new car loan offer from RACV. No ongoing fees.
From 6.2% (fixed) 6.73% $15,000 1 to 7 years $378 Go to site More
Latitude Personal Loan (Secured)
Can be used for whatever purpose: renovating, buying a car, booking a holiday. Funds can be in your account in as little as 24 hours.
From 12.99% (fixed) 14.2% $3,000 2 to 7 years $250 (Loans under $4000 - $140) Go to site More
Matchacar Financing
Get a tailored financing solution for buying your next car.
From 5.35% (fixed) 6.04% 1 to 7 years $350 Go to site More
RACQ New Car Loan
Apply online and receive a response within 5 business hours.
From 6.2% (fixed) 6.73% $15,000 1 to 7 years $378 Go to site More
NRMA Car Loan
Purchase a new car with an NRMA Car Loan with a fixed rate term and no monthly fees.
From 6.2% (fixed) 6.73% $15,000 1 to 7 years $378 Go to site More
AutoCarLoans can match you with a lender on their panel with rates starting from 4.99% p.a.
From 4.99% (fixed) 5.78% $15,000 1 to 7 years $381.80 Go to site More
St.George Secured Personal Loan - Fixed Rate
Get behind the wheel of your perfect car with a competitive interest rate from St.George. Get an application response within 60 seconds.
From 8.49% (fixed) 9.39% $3,000 1 to 5 years $195 Go to site More
Bank of Melbourne Secured Car Loan
A low rate personal loan from Bank of Melbourne with variable or fixed option.
From 8.49% (fixed) 9.39% $3,000 1 to 5 years $195 Go to site More
BankSA Fixed Rate Car Loan
Apply for a fixed rate car loan from multi-award winning BankSA.
From 8.49% (fixed) 9.39% $3,000 1 to 5 years $195 Go to site More

Things to avoid with car loans

When considering car finance important to avoid taking out a loan that you wouldn’t be able to manage. You should compare your options and see what’s available to make sure you make an informed choice. While dealer finance might seem convenient to apply for when you buy your car, you should come prepared with research from other loan options so you can see if it is actually a good deal.

How to apply

To apply for a car loan you can compare some of your options on this page, or use the navigation on the side and top of this page to find some other loan products to compare. Once you have chosen the right car loan then you can click ‘Go to Site’ to be directed through to the lender’s website.

Eligibility requirements will differ between lenders, so be sure to confirm whether you will be eligible before you apply. Generally, you’ll need to be over the age of 18 and be receiving regular income into your bank account. You may also need to have a good credit rating depending on the lender.

Was this content helpful to you? No  Yes

Related Posts

Beyond Bank Low Rate Car Loan "Special Offer"

A great rate for cars under 2 years old.

CUA Fixed Rate Car Loan

A competitive car loan that offers flexible repayment options and no account keeping fees.

RACQ New Car Loan

A low fixed rate loan from RACQ suitable for buying a new car.

Ask a Question

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the privacy policy, receive follow up emails related to and to create a user account where further replies to your questions will be sent.

Ask a question