A car loan is a type of secured personal loan. The car you're buying is the security, meaning the finance provider can reclaim the car to recoup its costs if you can’t repay the loan.

This reduces risk for the lender and means car loan interest rates are usually lower than unsecured personal loans.

Car loans can be used for new or used cars, and for dealer or private sales.

With a secured car loan you should get:

A low fixed rate Flexible terms and repayment options No deposit required Simple and quick approvals

This depends on the lender. It also depends on which company they check your credit score with as the score ranges vary. As an example, Equifax (one of the major credit reporting companies operating in Australia) classifies anything above 669 as being a ‘good’ credit score.

Having a good credit score means you would be eligible for a loan with most lenders (depending on your other circumstances).

But having a bad credit score isn’t the end of the world. It can simply mean you need to apply with more specialist lenders.

If you have a bad credit score and your application is accepted, you may be offered higher rates and/or more restrictive loan terms.

Avoid making multiple car loan applications in a short space of time as this can damage your credit score.

Find out what your credit score is for FREE before you apply for a loan.

The following steps could help make you a better candidate for a car loan:

1. Check your credit score in advance and take steps to improve it if it’s not in good shape.

2. Avoid making loan applications if you have started a new job recently.

3. Don't apply for loans you can't afford. Work out how much you can afford to repay comfortably each month and stick to that as your maximum budget.

4. Review the lender’s lending policies and eligibility criteria before you apply.

If you need help, you could consider working with a car loan broker. They are experts who can guide you through the process and can be particularly useful for complex applications.

A lot of car finance providers can pre-approve your car loan on the same day you apply.

For a fast turnaround, you’ll need to be able to prove your identity and supply documents to prove your income and expenses.

This usually includes your most recent pay slips, bank statements and home loan statements.

Typically, you can expect to be driving your car in 2-3 business days.

As long as you can afford the monthly repayments, you generally, don't need a deposit in order to get a car loan.

You can apply for a car loan with banks, car dealerships, car finance brokers or online lenders.

They all have different products and rates so it can be hard to find the right one for you.

We recommend using Money Matchmaker™ to do the leg work for you. It's like applying for quotes direct with a range of lenders all at once.

This really depends on what you want from a car loan deal.

Online car loan lenders often have the lowest rates. They can also approve loans quickly in many cases, if your application is straightforward.

The reality is shopping around is the best way to find the most suitable lender for you.

Generally your car finance options are the same regardless of what car you're buying. The exception is the finance offered through the manufacturer itself or a particular dealer.

We've written guides on the financing options and deals available for some of the most popular car manufacturers in Australia:

• Toyota finance
• Mazda finance
• Tesla finance
• Kia finance
• Hyundai finance
• Nissan finance
• Ford finance
• Mitsubishi finance
• MG finance
• Volkswagen finance
• Isuzu finance

It's important to make an informed decision about whether a car loan is right for you. To help you do that, here's a summary:

Pros of car loans

• Means you can spread the cost of your car out over a number of years

• It's often a relatively easy and fast process to get a car loan

• With a car loan you may be able to buy a better and/or more up-to-date model of vehicle, assuming you can afford the repayments comfortably

Cons of car loans

• It will cost you more than buying a car using savings

• Some products can be complex, particularly how the costs are displayed (or not displayed) by some lenders

• Car loan fees can add up to a lot and are not always listed clearly

Choosing a car loan with a large, one-off balloon payment at the end can be a good way of reducing your regular loan repayments. The thing to remember is that it will likely mean the loan will cost you more overall.

The lowest car loan interest rate currently available is 5.79% p.a. (comparison rate 6.91% p.a.). That's a fixed rate 'green' car loan available for electric vehicle purchases in Australia. For non-EVs, the lowest interest rate for a new car is 5.99% p.a. (comparison rate 7.11% p.a.).

At the other end of the scale, our analysis, shows some lenders in Australia charge rates as high as 27% p.a. (comparison rate 45.70%).

The average car loan interest in Australia is 9.60% p.a. For green car loans, the average interest rate is lower at 7.02% p.a.

These averages are based on Money.com.au's database of lenders.

This will depend on who you are and what kind of car you're buying. For a borrower with a good credit score buying a brand new car (particularly an EV), you should generally be aiming for a car loan interest rate below 8% p.a. and ideally closer to 6% p.a.

To be eligible for a lower rate car loan, here are some steps to consider:

• Compare rates with multiple lenders. It's very unlikely that the first rate you come across will be the lowest you can get.
• Negotiate the rate with the lender. You have nothing to lose by asking for a lower rate.
• Buy a newer car that's eligible for a lower interest rate.
• Contribute a deposit towards the cost of the car so you're borrowing less.
• Improve your credit score so you move into lenders' lower interest rate brackets

The comparison rate on a car loan is designed to represent the true cost of the loan. It factors in the loan's interest rate as well as most fees charged.

As the name suggests, the comparison rate is designed to make it easier to compare loans based on their actual cost. It will highlight if a car loan has a deceptively low interest rate, but high fees inflating the overall cost.

Legally, car loans must be advertised with a comparison rate.

Dealer finance is not generally known for offering fabulous value for money. In many cases, you'll pay a higher interest rate for the convenience of getting your car and the finance taken care of under one roof.

The government's Moneysmart website suggests you should "compare loans before visiting a car dealer".