Car loans Australia
A car loan is a secured loan used to purchase a vehicle. The vehicle is used as collateral on the loan, with terms generally between two and seven years. You can apply for a car loan in Australia with banks, car dealerships, finance brokers or online lenders.
In this guide, you’ll learn:
How car loans work
A car loan - also called car finance or vehicle finance - works in a similar way to a secured personal loan. You borrow an amount of money to finance the purchase of a vehicle, then repay the loan amount - plus interest - over a fixed term to the lender. Repayments can often be negotiated to either weekly, fortnightly or monthly instalments.
Secured car loan or personal loan?
The main difference between a secured car loan and a personal loan is that you will use the vehicle you purchase as security on the loan amount, and the amount you can borrow will be relative to the value of the car. A secured car loan can give you a better deal as the risk to the lender is reduced.
Example of car loan vs personal loan
|Car Loan||Personal Loan|
The rate and fees applied to your vehicle finance will vary, depending on the lender, the age of the vehicle, and your personal credit profile.
Car Loan Comparison
To compare car loans in Australia, you’ll want to look at which lenders can offer you car finance based on your financial history, and the factors that will influence both your regular and total repayment amounts. You really need to take note of the fees payable at the start and during the term of your loan, as this will impact the total amount repaid. The best car loan will generally be the one that costs the least. Comparing car loans with keeping any fees in mind will help you get the best car loan for your personal circumstances.
You can get a car loan in Australia through:
- Car dealerships
- Vehicle finance brokers
- Online car finance lenders
Factors that influence your repayments include:
- Upfront or ongoing fees
- Early repayment penalties
- The lowest car loan rates available
- The length - i.e. term - of your car loan
Secured car loans will generally use a fixed repayment structure - i.e. it doesn’t change over the term of the loan. With these loans, you generally cannot make additional repayments or repay the loan earlier than initially agreed.
Car loan lender comparison
Each type of car finance lender in Australia offers a different type of application, assessment, and approval process. Some offer low fees but slower approval, while others offer higher fees and same-day vehicle finance approval.
Below, you can compare car loans from banks, car dealerships, and vehicle finance brokers. When selecting a lender, it’s important to consider:
- The fees and charges
- The likely timeframe in which you will upgrade to your next car
- The loan features you need (such as the capacity for early repayment without penalty)
Banks are a common source of car finance. Most borrowers have an established relationship with at least one bank - e.g. savings accounts, investments accounts, or a mortgage - and this can help streamline the loan application and approval process.
Car finance obtained from a bank may:
- Be more flexible in relation to the terms and conditions
- Allow you to either repay your loan early without penalties
- Allow you to extend your term to reduce your regular repayment amount
- Require a longer and more thorough application process
Banks may offer a personal loan, not a secured car loan - you may have greater flexibility in how you use the funds, but you will pay a higher rate on this type of finance.
Car dealers will generally offer vehicle finance to their customers as part of the sale process. The main benefit to this form of finance is convenience - the dealership allows you to trade-in or dispose of an old car and acquire the finance to purchase a new vehicle in the same transaction. Car loans obtained from a dealership may:
- Include higher fees or charges
- Have a higher total repayment amount
- Have significant commissions attached to the loan
- Provide a high level of convenience in not needing to privately sell your old car
Dealerships are heavily incentivised to sell their in-house finance to their customers, which often represent poor value to borrowers compared to applying with a bank or finance broker.
Vehicle finance brokers
Vehicle finance brokers generally have access to a pool of specialist car finance providers. Using a broker allows you to compare your objectives as a loan applicant against a range of car finance products, which is often the easiest way to find the car loan that suits you best.
Car loans obtained from a vehicle finance broker may:
- Include guidance on how to submit your application
- Include specific advice about selecting the right financier
- Be easier to meet approval criteria of many specialist lenders
- Ensure required compliance is demonstrated, quickly and efficiently
Most car loans are structured over five years, although most people break this term and upgrade their cars after three years.
Common car loan lender pros and cons
|Banks||Lower overall costs||Higher cost than non-bank lenders|
|Dealerships||Convenient||Unlikely to be the best deal available|
|Finance Brokers||The easiest way to get the most suitable deal||Requires you to pay a small broker fee|
Vehicle finance brokers operate all across Australia - you can find a broker to help you compare car loans in Sydney, Melbourne, Brisbane, Perth, Adelaide, Newcastle, and Canberra. No matter where you're located, a broker can assist in finding a range of suitable car finance options from local and national lenders.
Other types of car loan in Australia
In Australia, there are a number of vehicle finance options available as alternatives to a secured car loan. Depending on how you plan to use the vehicle - i.e. for personal or business use - there are three common options worth considering, which are:
A novated lease is a tax-effective way for an employee to purchase a car, with repayments made from your pre-tax salary - read our guide to Novated Lease.
A chattel mortgage is a common type of business car finance in Australia, and works in a similar way to a standard car loan. A chattel mortgage can offer significant GST benefits to a business - read our guide to Chattel Mortgage.
A car lease is a type of vehicle finance where a lender will purchase a vehicle and rent it to the borrower over a fixed period. The two types of car finance lease you can consider in this situation are an Operating Lease and a Finance Lease.
How to apply
You can apply for a car loan in Australia if you are:
- Over the age of 18; and
- An Australian Citizen or Permanent Resident; and
- Are employed or have a regular source of income
You’ll need to demonstrate your ability to repay the full loan amount to your lender, and you can streamline your application process by preparing supporting documents:
- Proof of identity - i.e. passport or driver's licence
- Proof of income
- Proof of your assets
- Details of any current debts and expenditure
If you cannot provide the documents required for a standard car loan application, you may wish to consider a low doc car loan as an alternative.
Pre-approved car loans
A pre-approval car loan application is a great way to assess your borrowing eligibility and ability to repay your loan amount before selecting a vehicle. Most lenders will offer pre-approval on a car loan in Australia and, as a borrower, it can offer a number of benefits, including:
- A pre-assessed borrowing limit, which can allow you to refine your vehicle search
- Confidence to purchase a vehicle, knowing finance will be approved
- Security in knowing your application won't be declined (a declined application could affect your credit score)
How do lenders assess a car loan application?
When assessing your car loan application, lenders will consider:
- The amount of money you wish to borrow
- The age and type of vehicle you wish to purchase
- Your personal credit history
Each lender will have different rates and qualifying criteria, but the ideal candidate for a car loan will:
- Have a clean credit history
- Have been in regular, stable employment for two years
- Be able to provide address history for two years
- Be looking to finance a brand-new or fairly new vehicle
- Be obtaining the car through a dealership or car franchise
- Be able to provide a deposit (though this is not necessary)
Keep in mind this is only the ideal candidate for a car loan. You can still get quick approval if you are:
- Buying a used car
- Purchasing a vehicle through private sale
- Do not wish to provide a deposit
- Have an imperfect credit history
If you are living and working in Australia as a temporary resident - and hold an eligible TSS visa - you can still finance a vehicle with a non-resident car loan.
Credit score for car loans approval criteria
Your credit score is an important factor for vehicle loan approval. If you have a clean credit file, it should be very easy to get approval for a car loan if you meet basic lender criteria. Negative aspects of your credit file can be broken into three categories, shown below from least to most severe:
- Part IX debt agreement
If you have a history of defaults or a poor credit score, you can learn more about how to apply for vehicle finance in our Bad Credit Car Loans guide.
Lenders will require more exhaustive documentation when applying for a car loan with a low credit score - it's important to know what you'll need to provide a lender to ensure the fastest approval time.
Loan borrowing limits
You can generally borrow between $5,000 and $100,000 though the average amount is around $30,000. The amount you're able to borrow for vehicle finance will be assessed according to your income and credit profile.
Car loan minimum and maximum borrowing amounts
|MINIMUM AMOUNT||MAXIMUM AMOUNT|
Car finance loan terms
Most lenders will offer car loan terms between two and seven years, though the average term is five years. The term on your car finance will often be fixed (i.e. you can’t extend your loan term).
Car loan minimum and maximum terms
|Minimum Term||Maximum Term|
|2 years||7 years|
Used Car Loans
Used cars are assessed differently than brand-new cars for car loans. You’ll need to factor in the age of the vehicle when you purchase it and the age of the vehicle at the end of the term. Generally, a vehicle will need to be no older than 12 years at the end of the loan term.
How vehicle age affects car loan terms
|Vehicle Age||Term||Vehicle age at The end of loan term||Suitable for finance|
|7 years old||3 years||10 years old||Yes|
|7 years old||6 years||13 years old||No|
Car loan fees and charges
Most car loans will have various fees attached. If you agree to car finance that includes early repayment penalties, these will often be charged at a set fee on the number of months you repay early. For example, if your early repayment fee is $10 per month and you choose to repay the equivalent amount of one year’s repayments early, you will be charged $120.
Common car loan fees and charges may include:
- Establishment fees if your loan is approved and you accept the offer
- Ongoing service or account-keeping fees
- Penalty fees for early repayment
- One-time broker fees if using a vehicle finance broker
In the table below, you can see how high fees on a car loan won’t always mean you receive the lowest total repayment amount. Over time, monthly fees can add up to a significant amount over the term of your loan and cost you a lot of money.
How car loan fees change loan repayments
|Loan Amount||Loan Term||Rate||Fees (monthly)||Monthly Repayment|
To quickly compare loan amounts and see your estimated repayments, use our free car loan calculator.
Before you agree to a car loan, you’ll want to fully understand and assess the impact any monthly fees may have on both your monthly repayments, and total loan repayment amount.
Types of car you can finance with a vehicle loan
You can finance most vehicles with a car loan, however newer vehicles and vehicles purchased from a dealership or established car franchise will be easier to approve for a car loan. Different lenders have restrictions as to where a vehicle can be purchased, the age of the vehicle, and the amount they will offer in relation to its value. Important considerations include:
The vehicle must be no older than 12 - 15 years at the end of the loan term.
In general, a vehicle must be no more than 12 years old at the end of the loan term for a borrower to be granted approval for vehicle finance.
Most financiers will not lend on “grey imports”.
Nissan Skylines are often the most common example of this, and a grey import indicates a vehicle has been imported as a used vehicle, and was not originally sold by the manufacturer in Australia.
Vehicles with negative reports on the Personal Property Securities Register (PPSR).
These cars will not be considered for vehicle finance. This may include the vehicle being reported stolen, written off, or registering incorrect odometer readings.
Car finance when buying a vehicle through private sale
There are some strict guidelines in place for obtaining finance for privately bought cars, and it is the buyer’s responsibility to conduct checks on the vehicle to ensure it meets finance criteria. These checks are performed to ensure the vehicle is not stolen or written off, and crucially whether the vehicle is still under finance by another borrower.
If you are buying a car through a private sale, you will want to establish that:
- The seller owns the vehicle
- The vehicle’s title is free and transferable
- The seller has the right to market the vehicle
- The proceeds of the transaction are going back to the seller
To learn more about how to buy a car through a private sale, including how to organise an independent vehicle inspection and obtain a car history report, you can read our guide on Private Sale Car Loans.
Where a vehicle is still under finance from a previous loan agreement, this is referred to as ‘encumbrance’, and will not be approved for a car loan.
In summary, car loans in Australia
- Are fixed-term secured loans
- Are arranged through a bank, car dealership, finance broker or online
- Can include weekly, fortnight, or monthly repayments
- Have terms between two and seven years in length
- Can be used to finance almost any personal vehicle
- Can be used to purchase cars through private sale
Car Loans FAQ
How do I qualify for a car loan?
If you are over the age of 18, a permanent resident of Australia, can verify that you earn a steady income, and demonstrate an ability to repay your loan amount, you will qualify for a car loan.
How much can I borrow on a car loan?
You can generally borrow between $5,000 and $100,000 on a car loan in Australia, though the average amount is around $30,000. The amount you're able to borrow for vehicle finance will be assessed according to your income and credit profile.
Can I get a car loan with bad credit?
Yes, you can get a car loan with bad credit. However, you often won’t qualify for a standard vehicle finance, and will need to apply for a specific loan product called a Bad Credit Car Loan - these will often have higher rates and you will generally be required to provide extensive supporting documentation to prove your ability to meet repayments.
How quickly can I get approval for a car loan?
Approval time will vary from lender to lender, though can be anywhere from a few hours to a few days. You’ll get the fastest approval time if you have a clean credit history, are in stable employment, are wishing to finance a brand-new vehicle and are willing to provide a deposit.
Can I buy a car through private sale?
Yes, you can purchase a vehicle through private sale in Australia. You will be responsible for ensuring the vehicle meets all legal requirements for finance, and it’s crucial you understand the process of purchasing a private sale vehicle when conducting pre-purchase checks.
Will my loan amount include insurance and on-road costs?
If you finance a vehicle through a broker or dealership, you may be able to include on-road costs and insurance in your car loan agreement. However, as a car loan is secured only by the vehicle itself, any additional finance beyond the purchase price may incur monthly fees on the loan.
Which vehicles can I finance with a car loan?
You can finance a large number of vehicles using a car loan, however the vehicle will generally need to be less than 12 years old at the end of the loan term to qualify. If you aren’t able to finance your vehicle of choice through standard car finance, you may wish to consider other forms of vehicle finance.
Do I need a deposit for a car loan?
You often won’t need to provide a deposit for a car loan, though doing so will often get you faster approval or a better rate on your loan. Most lenders will allow you to borrow the entire purchase price of your car as long as you have a good credit rating and can demonstrate financial stability to comfortably meet your repayment obligations.
Can I make extra repayments on a car loan?
Most lenders will allow you to repay your car loan early, however some loans will come with early repayment fees. Depending on how much you repay and how soon into your loan term you may extra repayment, these early repayment fees are often lower than the interest you would save over the full loan term.
Can I buy a car on Gumtree using car finance?
Yes, you can get a car loan for a private sale advertised on Gumtree or any other online marketplace. The minimum purchase price needs to be $5,000 for a secured car loan.
Will applying for a car loan affect my credit rating?
Any finance application you make will be listed on your credit report - this is why it’s important to evaluate your financial situation and qualifying eligibility before applying for a car loan. If you choose to work with a vehicle finance broker, they will often provide a No Credit Check Assessment to indicate your eligibility before applying.
What is vehicle depreciation?
Vehicle depreciation is the value lost on a vehicle as soon as it is driven away. As a car loan is a type of secured personal loan, there will often be a minimum amount you can borrow, which ensures the vehicle you purchase is of adequate value to act as sufficient collateral in the event of any depreciation.