Car loans

When you need a new set of wheels but don’t have 100% of the cash needed to pay for it upfront, a car loan can put you on the road without you having to wait. Check out some of the great deals on offer on this page.

By   |   Updated 5th August 2020

Comparing car loans for $30,000.00 over 60 months

RateSetter Car Loan - New & Demo Cars

On RateSetter's website

RateSetter Car Loan - New & Demo Cars

Interest rate

From 4.89% (personalised)

Comparison rate

From 5.44% (personalised)

Repayment period

5 years

Application fee

From $249.00

Monthly repayment

$569.31

Total repayment

$34,158.60

Highlights

  • Enjoy a low rate that is 100% made for you
  • Apply online in under 10 minutes with your driver’s licence and bank details. Enjoy no monthly or early repayment fees
RateSetter Car Loan - Used Cars

On RateSetter's website

RateSetter Car Loan - Used Cars

Interest rate

From 5.29% (personalised)

Comparison rate

From 5.84% (personalised)

Repayment period

5 years

Application fee

From $249.00

Monthly repayment

$574.86

Total repayment

$34,491.60

Highlights

  • Enjoy a low rate that is 100% made for you
  • Apply online in under 10 minutes with your driver’s licence and bank details. Enjoy no monthly or early repayment fees
RateSetter Car Loan - Refinance

On RateSetter's website

RateSetter Car Loan - Refinance

Interest rate

From 5.29% (personalised)

Comparison rate

From 5.84% (personalised)

Repayment period

5 years

Application fee

From $249.00

Monthly repayment

$574.86

Total repayment

$34,491.60

Highlights

  • Enjoy a low rate that is 100% made for you
  • Apply online in under 10 minutes with your driver’s licence and bank details. Enjoy no monthly or early repayment fees

Overview

Even if you're a little strapped for cash, car loans can help you score the car of your dreams – be it a classic sports car, a practical hybrid, an SUV or just a dependable means of getting from A to B. But given the myriad of financing options and eligibility requirements, choosing the best car loan can prove to be an intimidating task. Below, we break down the basics of car financing so you easily can compare car loans without driving yourself dizzy with unfamiliar terms.

New car loans vs used car loans

Whether you're looking to buy brand new or purchase a used car, there are lots of car financing options to choose from. However, it should be noted that some lending bodies impose a maximum car age for second-hand vehicles. Aside from this, there are other ways that new and used car loans differ as well. These factors should be taken into consideration well before you go car-hunting.

  • Overall car loan amount and repayment terms. Since a used car will most likely be cheaper than a new car, used car buyers won't have to take out massive loans to finance their vehicles. Paying off used car loans is usually faster too, since used car loans typically have shorter terms than new ones.
  • Interest rates and comparison rate (sometimes called the APR). When it comes to interest rates, new cars are at an advantage. Due to the higher resale value and lower likelihood of breakdowns, a new car loan is often given a lower interest rate and comparison rate (which includes the effect of loan fees). Some lenders even offer a 0% interest rate on new cars, although such loans may have higher fees or see you paying a top price to purchase the car. 
  • Limitation on age of used cars. Lenders may refuse to financed used vehicles that will be more than 12 years old at the end of the loan term. So if, for example, you need a loan term of five years, your chosen vehicle cannot be more than seven years old at the beginning of the loan term.
  • Sales, special rates, and discounts. Holiday sales, year-end sales and store anniversaries are great opportunities to buy a new car at discounted rates. Unless you're buying from a dealership, you're not likely to encounter these kinds of special rates when buying a used car.
  • Depreciation. They say that a new car loses value the minute it's driven off the lot. In some estimates, a new car can lose up to 40% of its value within the first year. Meanwhile, a used car takes much longer to depreciate since the previous owners have taken the brunt of the blow.

Secured vs unsecured car loans

Distinguishing between secured and unsecured car loans is pretty straightforward. A secured car loan is a type of loan where the lender reserves the right to repossess an asset should the borrower fail to meet their loan repayments. In short, the asset – typically the car being purchased – is used as collateral. An unsecured car loan, on the other hand, doesn't require any type of asset to be used as a security.

While the thought of having your car taken away can be pretty daunting, it's something you should get used to, as secured car loans are far more common than unsecured ones. After all, banks and other lending parties need some kind of assurance that they won't sink their companies to the ground by giving out loans.

There are advantages and disadvantages to either type of car loan. Though unsecured car loans may seem less risky for the borrower, they usually come with much higher interest rates than secured ones. Again, it's all about lenders needing to minimise risks. Typically, there's a one and a half to three percent difference between interest rates for secured and unsecured car loans. Check out our car loan comparison chart above to see what we mean.

And while an unsecured car loan is usually the better option for financing a used car, borrowers need to make sure they've got decent credit scores. Otherwise, you might be better off applying for a secured car loan.

Types of car finance

There is more than one way to gain financing for a car. Here are the six most common types of car loan.

  • Standard car loan. As its name suggests, this is a typical bank or credit union car loan where you and your lender agree on an interest rate as well as a fixed loan amount and term. Early repayment may or may not be allowed. Standard loans are great for people who are looking for the simplest, fastest way to finance a car. This type of loan is often secured, more often has a fixed rather than a variable interest rate, and you'll likely need a good credit score to apply.
  • Hire purchase. Think of this loan as a rent-to-own deal. A lender purchases a car with their own money, then lends it out to another person for a fixed monthly fee including interest. Once the borrower accomplishes all their monthly repayments, the car is theirs. This car loan is often more flexible than a standard loan, and allows room for prepayments and balloon payments.
  • Finance lease. Similar to commercial hire purchase, finance leasing occurs when a lender (or a lessor) allows another person (a lessee) to use their car for an agreed fixed monthly rate and leasing period. Unlike hire purchase, at the end of the contract, the lessee can decide whether they want to buy the car from the lessor or start a new lease with another car. This type of agreement is often made by businesses in need of a company car or a fleet.
  • Operating lease. Just like a finance lease, a lessor lends out their car to a lessee for a set of agreed monthly repayments. However, an operating lease is more like renting a car. Once the term is over, the lessee will normally return the car to the lender.
  • Novated lease. This is a three-way agreement between an employer, an employee, and a lender, where the employer deducts monthly lease payments from the salary of the employee using the car, reducing their pre-tax income.
  • Chattel mortgage: In a chattel mortgage, a finance company lends a person money to buy a car predominantly for business use, but also holds a mortgage over the car as a form of security. Once the loan amount is paid in full, the title of the car is transferred to the borrower. Car loan interest rates are often lower for chattel mortgages, as the lender has a security over the car.

Car loan eligibility

To be eligible for a car loan or a lease, you must be at least 18 years of age. You must also be an Australian citizen or have an acceptable residency visa. Finally, most lessors and lenders are concerned with a borrower's capacity to make their repayments, so a regular source of income is also required. The lender will also check your credit score and make a decision about approval and interest rates based on your creditworthiness.

Car loan documents checklist

Once you've decided on the type of car you're going to purchase as well as the kind of loan you're willing to take, your next step is to put together the required documents. While not all lenders will require you to submit each of these documents, it doesn't hurt to be prepared.

  • Proof of identity. To secure any kind of personal loan, you will need to provide 100 points of identification. Copies of your birth certificate (or Australian citizenship certificate) and your passport will get you 70 points each, while an Australian driver's licence or tertiary student card will get you 40, and a credit card or Medicare card will score 25.
  • Proof of income. Payslips are the most common form of proof of income for employees. Usually, lenders ask for at least your last two payslips to verify your income and your employer. If you are a business owner or are self-employed, you can provide tax returns or financial statements. 
  • Proof of residence. To prove your residence, you can provide a copy of a utility bill with your name and address, a rental contract or a mortgage agreement.
  • Proof of savings. Some lenders screen their borrowers based on their perceived ability to keep making their monthly repayments. Don't be surprised if a lender asks for a bank statement – and make sure you've got some money in it.
  • Proof of assets and liabilities. Some lenders might ask you to make a list of your assets. These are your investments (e.g. shares), superannuation, and any property you own. They'll also want to know about your liabilities – mortgages and other loans, including credit card balances.
  • Information about the car you want to buy. This may include an invoice or sale contract from the dealer, the make, model and year of the vehicle, the VIN number and registration details.
  • Proof of insurance. As third party insurance is compulsory in Australia, most lenders will turn down borrowers who do not have any kind of insurance plan for their car.

Learn about car loans

Our team share their tops tips for financing a new or used car using a car loan.

  • Pros & cons
  • Tips
  • FAQs
  • Glossary

You get immediate access to private transport

If you're planning to buy your first car, instead of having to use public transport for the foreseeable future, or rely on lifts from family and friends, you can have your own vehicle right now and be independent. And if you've owned several cars already, a car loan can help you own a more up-to-date model.

You avoid having to pay a fortune upfront

It's often just not practical to shell out a huge amount of money to purchase a new or used car. Though you may have enough in your savings account, it's always a good idea to keep it for emergencies. Financing a new or used car through a car loan can help you maintain that sense of security and balance that will allow you to cover expenses in case of a crisis.

A car loan helps build your credit score

Initially, taking out a car loan can decrease your credit score, as this hikes up your credit utilisation. But if you can make all your repayments on time, a car loan will, in time, increase your credit score.

Interest charges mean you pay more in the end

The interest rate is what you pay a car finance company for lending you their money. Essentially, unless you strike a 0% interest rate deal, you're not getting that money for free. Banks and other lenders do this because lending money is risky business, and they need some kind of safety net should things go south for their borrowers.

As a result, taking out a car loan ends up being more expensive in the long run. You just don't feel the effects immediately. This is why it's important to compare car loans and find ones with good deals on interest rates and terms.

You can get penalised for early repayment

If you have the money to pay off your loan amount before your car loan term ends, consider checking your contract if there are clauses on prepayment penalties. These are fees you could incur simply for paying your car loan off prematurely.

Why do prepayment penalties for car loans exist? Because lenders earn interest over the whole loan term. If one of their borrowers ends up paying early, they need to find a way to make up for their losses.

Note that not all car loans come with prepayment penalties. Check the loans terms and conditions to be sure.

A car is a depreciating asset

Most advisers recommend shorter loan terms, as longer ones could be detrimental to your overall financial situation. Typically, you'll want to avoid loans that take longer than six years to pay off. This is because a car – especially a brand new one – depreciates fast. With longer loan terms, you could end up paying far more for a car that has long lost its value.

Risk of losing the car if you default

If you take out a car loan secured on the car you are buying, you could risk having the car repossessed by the lender if you don't keep up with repayments.

Factor in ALL the costs of financing and running a car first

When considering car financing options, you should be thinking about much more than just the price of the car, the loan amount, and the interest rate and comparison rate. If you're not prepared, owning a car can feel like one surprise expense after the other. To work out how much money you actually need to buy and maintain a car, calculate your annual and monthly expenses on the following:

  • Stamp duty on transfer of vehicle title (unless you're leasing)
  • Vehicle registration fees, including CTP (Compulsory Third Party/"Green slip")
  • Your loan repayments
  • Fuel, parking and toll expenses
  • Maintenance and repairs
  • Insurance costs

Make sure you have a good credit score before applying

The relationship between a car loan and credit score is pretty straightforward. Car financiers want to minimise risk as much as possible, so they would rather approve borrowers who have proved that they can be good with their money. If you do have bad credit, you can still get approved for a car loan, but it's likely that you'll be given a higher interest rate.

And even if you do have a not-so-great credit score, you can still try to obtain a car loan with a decent interest rate, as long as you're employed with a steady job and are working on repaying your debts.

Consider getting a car loan pre-approval

A car loan pre-approval is when a lender decides you're eligible for a car loan even before you've purchased a car. When a lender decides you're in the clear to receive a loan, they give you what is called conditional approval, which is basically approval for a specified loan amount. The estimated amount is based on things like your credit score and your overall financial situation.

When you're set on the exact car you want to purchase, you have to go back to your lender and get unconditional approval, which means that they'll give you the loan amount you need.

A car loan pre-approval is beneficial because it gives you a set of guidelines when shopping for a new car. You enter the new or used car dealership with a budget in mind, and you can revert back to this budget when car dealers get pushy about low interest rate promos, add-ons, and other bonuses that might cost you more in the long run.

Features of a good car loan

These are four things you shouldn't overlook when considering a car loan:

  • A deposit to reduce your repayments. A deposit is a percentage of the purchase amount that you pay upfront. While taking out a car loan to pay for a car then dishing out, say, 20% upfront may seem counterintuitive, you'll be grateful later. Generally speaking, the higher your deposit, the smaller your monthly payments will be, and the faster you'll be able to pay them off. But you don't need to have a deposit in order to get a car loan, although it could improve the chances of your application being approved.
  • A short loan term. Loans for a car can last between one and seven years, although five years is more typical. Shorter is better, because you avoid the situation of still owing a lot of money on a car that is rapidly declining in value.
  • A low comparison rate/APR. When buying a new or used car, don't just look at the advertised interest rate, because it doesn't include the cost of any fees associated with the loan. The comparison rate is a more accurate representation of the total amount you'll pay each year, including upfront, monthly and annual fees.
  • Few penalties: Always read the fine print. Sometimes, car loan contracts have clauses about early payment penalties, late payment fees, and even payment processing fees. Read the terms and conditions carefully before committing.

Avoid balloon payments if you're already stretched

A balloon payment is a large payment made by the borrower at the end of a car loan, to finalise the loan. A balloon payment allows a borrower to get a loan with a low interest rate and a short term. The problem with this payment scheme is that it makes financing your car appear less expensive than it actually is, especially if your monthly repayments are already pushing you to your financial limit.

Compare car loans

Take as much time as you can to compare car loans from different lenders. Not all car loans are made the same, and you'll have to work out which factors are most important to you. Whether you’re looking for a low interest rate, a low or no deposit, a small or large total loan amount, a short or long loan term, you can check out our list above to compare car loans.

Can I get a car loan to buy a motorbike?

Yes, although you may have fewer loans to choose from than you would if you were buying a car.

Can I get a car loan to buy a used car?

Yes, most lenders offer loans for the purchase of used cars, but you may find it more difficult to get a loan for a car already more than five years old, or a car that will be more than seven years old at the end of the loan term.

Can I get my car loan approved first, before I’ve decided on which car to buy?

Yes, in many cases you will be able to get pre-approval so that you know in advance how much you have to spend.

Do car loans have a fixed or variable interest rate?

You can usually choose to have a car loan with either a fixed interest rate or a variable interest rate.

If you have a fixed interest rate, the interest rate never changes during the life of the loan, and your periodic repayments will always be for the same amount. This can make budgeting easier, but if interest rates generally are declining you will risk locking in a rate that sees you paying more in interest than you would have paid with a variable rate.

If you choose a variable interest rate, the rate can go up or down, usually in response to a change in the Reserve Bank’s cash rate. This can be risky if interest rates generally are rising, and it makes it more difficult to control your finances because your periodic loan repayment amount will change whenever the interest rate changes.

How does a car loan work?

It works in much the same way as any other loan finance. When you want to buy a car but don’t have enough cash to purchase it outright, you can apply to a lender for an advance of enough funds to buy the car. You then repay the loan, plus interest, in periodic instalments (e.g. monthly).

How much can I borrow with a car loan?

The amount you can borrow will typically fall in the range $2,000-$70,000, and will be calculated depending on on a number factors:

  • The purchase price of the car
  • Whether a deposit is required
  • Whether the car is new or used
  • Your income
  • You credit rating
  • Whether the loan is secured or unsecured
  • Any existing borrowings you have

How often will I need to make repayments?

You may be able to choose between weekly, fortnightly or monthly repayments.

Is it a good idea to get a car loan?

A car loan is considered to be a reasonable type of debt, provided you don’t take on more debt than you can afford, because you are acquiring an asset rather than borrowing for something ephemeral, like a holiday. You could also have a very good reason for needing a car, such as assisting in your employment or travelling to your employment.

Is it better to get a car loan direct from the lender or through a car dealership?

You will often get a better interest rate by applying to a lender directly, rather than through a middleman (the car dealer), since the middleman may expect to receive a commission from the lender for introducing the borrower (you) to the finance company (the lender). Alternatively, the dealer may mark up the price of the car you are buying because you are being given help with finance.

What is a car loan residual or balloon payment?

A residual or balloon payment is a one-off lump sum that the borrower agrees to pay at the end of the loan term, in order to reduce the monthly repayments. For example, if the total loan amount was $20,000, the borrower could agree to make a balloon or residual payment of $5,000 at the end of a five-year loan term, which means that only $15,000 of loan principal (plus interest charges on $20,000) would need to be repaid during the first 4 years and 11 months. You would need to compare the sum of your total repayments both with and without the residual payment option, to work out which method was more expensive, and whether it would be worth having lower monthly repayments.

What is included in the regular home loan repayment?

Most home loan repayments include a portion of the home loan principal as well as interest charges. In the early years of a home loan term, interest charges will account for the bulk of the repayment. But the ratio of principal to interest changes as the home loan amount is gradually reduced, so that in the final years the home loan principal accounts for a larger share of the repayments.

Interest-only home loans are an exception. In this case, the repayments only cover the interest charges and the home loan principal does not reduce, either during the entire home loan term or for an agreed number of interest-only years at the beginning of the term.

What is the difference between a car loan’s advertised interest rate and comparison interest rate?

The advertised interest rate is the rate that will actually be applied to the loan principal in order to calculate the amount of interest you must pay.

The comparison rate shows the effective interest rate you would be paying if all the fees associated with the loan (e.g. application fee, account-keeping fee) were instead built into the interest rate. The comparison rate provides a more accurate way of comparing the true cost of two different loans, because the loan with the lower advertised interest rate may cost more in total if it has higher fees attached to it.

What is the standard loan term for a car loan?

The loan term (the period of time allowed for you to repay your loan in full) can vary from 12 months to 10 years, but a typical term would be 3-5 years. You can usually negotiate the loan term with the lender, to suit your budget. For example, if you choose a shorter loan term, your monthly repayment amount will be higher but your total interest cost will be lower. If you choose a longer term, your monthly repayment amount will be lower but your total interest cost will be higher.

What kind of loan is a car loan?

A car loan can be either secured or unsecured.

For a secured loan, the lender takes a charge on an asset (collateral) owned by the borrower. This asset is most often the car being purchased, but it could be another asset, such as the borrower’s house or another car the borrower owns.

The charge on the asset gives the lender a degree of certainty that the loan will be repaid. If the borrower defaults on the loan, the lender could use court proceedings to take possession of the asset and sell it in oder to recover any remaining loan principal, plus interest and costs.

In the case of an unsecured loan, the lender will advance loan funds without taking security over an asset. Unsecured loans typically have higher interest rates and lower loan principal amounts, because they are seen as more risky from the lender’s viewpoint.

What other costs, besides interests, can I expect to pay with a car loan?

Some of the fees you may have to pay include:

  • Loan establishment or application fee (only payable if the application is approved), typically between $100 and $600
  • Monthly account-keeping or administration fee, ranging between $5 and $15 per month
  • Late payment fee, possibly around $20, charged if you don’t make your periodic repayment on time
  • Early exit fee, payable if you want to pay off your loan early (but some lenders will allow you to do this without charging a fee)

Will having a car loan affect my credit rating?

Taking out a car loan, making repayments on time and eventually paying off the loan will help you to build a positive credit history and improve your rating. Adding a car loan to your credit mix will also improve your score if you currently have only credit card debt.

Making an application for a loan has a slight downward impact on your credit score, but your score should recover quickly when you make prompt repayments. However, if you fail to pay on time or default on the loan, you will damage your credit score.

Will I be able to borrow 100% of the car’s purchase price, or do I need a deposit?

Some loan offers will require you to make a deposit towards the cost of a car, while others will let you borrow 100% of the cost. If you have savings, and can release some cash as a deposit without leaving yourself with no emergency funds, it makes sense to borrow less than 100% because the interest rate you can earn on a bank deposit will always be lower than the interest rate you will pay on a car loan.

Will I get a better interest rate by applying for a loan from the bank I do my everyday banking with?

Not necessarily. You should compare offers from a variety of financial institutions competing for your business.

APR

APR stands for annual percentage rate. An APR includes the total yearly interest rate of a car loan, plus all the fees you'll be charged for acquiring and servicing the car loan. This may include an application fee and monthly or annual loan administration fees, and more. An APR is often called a "comparison rate".

Balloon payment

A balloon payment involves paying a large sum to finalise a car loan at the end of a loan term. Lenders who use balloon payment schemes often offer low interest rates and shorter loan terms.

Comparison rate

See 'APR' above.

Demo car

A dealer demonstrator car, or a demo car, is a new car that is used by the dealership for display and test driving purposes. Sometimes, a demo car is used by dealership staff as an office car. A demo car is considered slightly used but still very close to brand new, so it's usually significantly cheaper than a new car but still more expensive than a used car.

Depreciation

The decline in value of a purchased vehicle. Once a vehicle is bought, it starts depreciating. Within the first year, a car can depreciate to up to 40% of its original value. Depreciation can lead to negative equity during a car loan.

Early payment penalty

An early payment penalty is a fee charged by a lender when a borrower pays off a loan before the end of its term. Lenders sometimes impose early repayment fees because they want to discourage prepayment and get the most out of the regular interest charges.

Negative equity

With car loans, being in negative equity means that the amount you owe your lender is more than the current value of your car. This usually happens when you take a long car loan for a vehicle that depreciates quickly.

Resale value

Resale value is the price of a previously used car. The resale value of a used car is always lower than its original price because of depreciation.

Security

When you take out a secured car loan, an asset – typically the car you're financing – is used as collateral in the event that the borrower cannot pay off their loan.

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