Over the years, I’ve helped thousands of people find a car loan.
I’m going to share the knowledge you need to
get the best car loan.
If you’re like most people looking for car finance...you’ll go to your own bank first.
If you’re savvy, you’ll then look for a
better deal online.
See, banks tend to offer you a personal loan, not a car loan.
There’s a big difference.
Let me explain...
Car loans are generally much cheaper.
A car loan is when you use the car you're buying to secure the loan.
In the (unlikely) event you do not meet your repayments, the lender can reclaim it.
It's less risky for the lender.
So they charge you less.
You don’t need security with an unsecured personal loan.
In other words, there’s nothing for the lender to reclaim.
It’s riskier for them.
So they charge you more.
Yes, car dealerships can also offer you car finance.
Even the Australian Government’s financial website Moneysmart warns, you need to look at car loans
before visiting a dealer:
You'll see lots of websites for car loan lenders and brokers.
You’re most likely going to be looking for the
lowest interest rate.
And, you’ll see plenty of "low rates" and “best car loans” advertised.
Frustratingly, these promoted rates won't necessarily be what
YOU qualify for.
Does this look familiar?
In fact, very few people qualify for these rates.
There’s a very simple reason for this: “risk-based pricing".
Lenders will look at how risky you are based on your application and credit score.
If they think you’re a bigger risk to lend to, they’ll charge a higher interest rate.
A LOT higher.
This is one of the most common reasons customers say they are not satisfied when shopping for a car loan.
“... The advertised interest rate may be lower than the rate quoted to the customer.” - Research by lender Society One
Who’d blame them for not being happy?
You see a rate you think you qualify for. Only to find out you don’t.
What a waste of time.
Plus, if that lender runs a hard credit check on you, this could hurt your credit score.
Meaning you may look riskier to the next lender you go to.
Let’s talk about what the best car loan deals actually are…
These are some of the lowest current “advertised” comparison rates:
These rates look great. But the reality is for some people their car loan interest rate will be closer to 20%. Or even higher.
You might assume that the best car loan is the one with the lowest interest rate.
And largely, that is true.
Be aware of how fees and the length of your loan change things.
Let’s look at some examples.
The average size of a car loan is $31,738.40 (according to data from lender Plenti).
Car loan terms are offered between 2 and 7 years.
Most people choose 5 years.
A 6% interest rate with a $900 up front fee and $10 monthly fee over 5 years is
over $1,600 more more expensive than...
A 7% interest rate with no fees.
|7% interest rate (no fees)||6% interest rate (with fees)|
Total to be repaid
This is why you need to look at the
loan comparison rate.
It shows the cost of the loan per year based on interest rate AND fees.
Now let’s look at the loan term.
Generally, the shorter the term, the less interest you will pay.
For example, on that same average loan amount, 6% interest over 4 years is
over $1,000 cheaper than:
6% over 5 years.
The trade off is you’ll have higher regular repayments to make with the shorter term.
But it’s a BIG overall saving.
|Loan repaid in 4 years||Loan repaid in 5 years|
Total to be repaid
In both these examples the cheapest loan was NOT the one with a lower rate.
So two features you want in your car loan if you can:
Fees are not always shown clearly by lenders. Here are some of the more common ones they charge:
You might need to dig into the fine print to find some of these, but it's worth it.
The BIGGEST factor when getting a car loan approved is your ability to service the loan.
This means, after you have paid all of your other living costs, you have enough money to meet your car loan repayment.
The average Australian income is $52,338. This is around $824.50 weekly after tax.
Let’s say your car repayment is $124 a week. You would have a balance of $700 to cover your living expenses.
If you could live on that comfortably, you would likely pass servicing and be approved.
In the event you didn't meet servicing, you have some options:
I have seen numerous customers get caught out for another reason: Having multiple credit cards.
Say you have three credit cards with a combined limit of $15,000.
A lender would assess your application as if you were maxing out the total limit for your cards.
Even if you actually have $0 balances right now.
The lender looks at it like this: Even though you haven’t drawn down on these cards,
In this case, you could consider closing down one (or two or all) of these credit cards. This could help prove your ability to comfortably repay a loan.
Servicing (aka your capacity to repay) is why
I ALWAYS suggest that you get an approval before going shopping for a car.
Knowing how much you can borrow means:
As you can see, there’s a bit to think about when you’re looking for a car loan.
BUT it doesn’t need to be a difficult process.
With the help of an amazing team, we have bottled all of our knowledge and experience (plus lender policies, rates and fees) into a powerful car loans engine.
We call it Money Matchmaker®.
10,418 people have used it in the last 12 months alone.
It can save you time and
potentially thousands of dollars in interest and fees.
Money Matchmaker® will instantly show you the best car loan options available to you from multiple lenders.
To help you make your decision...
Your results are ordered by the lowest total car loan cost over the term of your loan.
It'll look like this...
From here, you select the option that suits you best.
If you need further help, our team of human Money Matchmakers is on hand to guide you through the process.
Money.com.au may receive a referral fee from the lender if you choose to take out a loan.
If you want to learn more about how car loans work, I’ve answered some commonly asked questions below.
If you want to know with complete certainty how much your car loan repayments are going to be every month, a fixed rate will give you that.
The fixed rate you sign up for at the start of the loan won’t change for the duration of the loan. A variable rate could go up or down.
A lot of car loans tend to be fixed rate but there are variable ones out there.
What’s more important than the type of rate is having a loan with a low rate AND the flexibility to pay it off early without penalty.
A car loan can typically be anything from $5,000 up to $150,000. The amount you can actually borrow will depend on a few aspects of your personal and financial situation.
But as a general rule, the more cash you have left at the end of each pay once all your expenses are taken away, the more a lender will be willing to lend to you.
This could depend on:
Another factor is how long of a loan term will you have. You might be able to borrow more if you agree to a longer term as your regular repayments will be lower. But this will make your loan more expensive overall due to the extra interest costs.
As I’ve covered above, car loan interest rates are personalised. So yours will likely be different to another person who applies with the exact same lender.
To give you a head start on working out what kind of rate you might get, here are the main factors lenders consider when calculating a borrower’s car loan interest rate:
Be prepared to give the lender evidence of your financial situation when you apply for a car loan. This will likely include:
I’d suggest having these ready to go when you apply. It will slow your approval down if you can’t provide the documents the lender asks for.
Most car loan lenders can approve your car loan on the same day you apply. This assumes you provide the evidence of ID and any financial documents you’re asked for at the time of application
Typically, you can expect to be driving your car in 2-3 business days.
The short answer is no. In most cases as long as you can afford to meet the repayments, you can borrow 100% of the cost of the vehicle.
You can of course choose to borrow less than 100% by contributing some of your own money towards the cost of the vehicle. This will bring down the cost of interest over the life of the loan.
You can finance most cars with a secured car loan. They will generally need to be less than 12 years old at the end of the loan term to qualify (the age allowed varies by lender).
Buying older cars is still possible with an unsecured personal loan. You can also use a car loan with a private seller.
For commercial vehicles you can get a business car loan.
If you can’t cover the purchase price of your new vehicle using your savings, there are a few car finance options available (using savings will always be the cheapest way to pay for a car):
Some thoughts on these options. Credit card interest rates are usually higher than car loan rates. And in turn, a car loan rate would usually be higher than a home loan rate.
But think about the duration of the finance too. Adding to your home loan, which you might be repaying for another 20 years, could be an expensive way of paying for a car you might only have for the next five years.
Ultimately, deciding on the best way to finance a new car means doing your research. Find out what you can borrow and how much the repayments will be including all fees. Then find out if you can pay it off faster by making extra repayments without incurring extra fees.
This will ensure you get the best deal and don't pay more than you have to.
And if you're financing a business vehicle, here are some of the common options:
Like all financial products, there are pros and cons to getting a car loan.
It’s possible to get a car loan if you have bad credit. But it can be more difficult.
Some lenders won’t lend to borrowers whose credit score is below a certain level. The ones that do might ask you to provide more financial information and evidence in support of your application. So it will probably take longer to be approved.
If your application is accepted, you may be offered higher interest rates and fees, and more restrictive loan terms.
If you’re struggling to get a loan from a bank or other mainstream lender, there are also lenders who specialise in bad credit car loans.
Find out what your credit score is before you apply for a loan. This can save you time applying for loans you won’t be eligible for. If you're not in a great spot with your finances, it may be worth seeking advice from a financial counsellor before you take on any new debt.
Here are some steps you could consider:
This depends on a lot of factors and what you want to prioritise in your loan.
But generally online car loan lenders often have the best interest rates and fast approvals, particularly if you have a good or excellent credit score.
Loan Amount: $30,000
Establishment Fee: --
Total Interest Paid: --
Ready for the next step?
Get free loan offers. Using technology Money Matchmaker® matches you to the lowest rates you qualify for from a pool of lenders.
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Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $30,000 over 5 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.