Car Loans

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. 

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  
  

Take note of the fees payable, both 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 while keeping any fees in mind will help you get the best car loan for your personal circumstances.

Money Tip

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.

Other car finance options

There are two common alternatives to a secured car loan, both of which use the vehicle as security on the loan amount. Each alternative has unique qualifying criteria, suitable for specific individuals and circumstances: 

Novated Lease 

A novated lease is a tax-effective way for an employee to purchase a car, with repayments made from your pre-tax salary — learn more about a novated lease. 

Chattel Mortgage 

A chattel mortgage is a common type of business car finance in Australia and works similarly to a standard car loan. A chattel mortgage can offer significant GST benefits to a business — learn more about a chattel mortgage.

Car finance lenders

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
  
• 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

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  
  

Money Tip

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 dealerships

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
  

Money Tip

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 
  

Money Tip

Most car loans are structured over five years, although most people break this term and upgrade their cars after three years.

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. 

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 licence
• Proof of income
• Proof of your assets
• Details of any current debts and expenditure

Money Tip

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

Car loan pre-approval 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

Money Tip

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 scores and car loan applications

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:

• Defaults 
• Part IX debt agreement 
• Bankruptcy 
  

If you have a history of defaults or a poor credit score, you can learn more about how to apply for vehicle finance using a bad credit car loan.

Money Tip

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.

Car finance when buying a vehicle through a 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 
• Written off 
• Under an existing finance agreement 
  

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.

Money Tip

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.

Car loan interest rates

When lenders assess an application for a car loan, they’ll decide if you qualify for approval and assign an interest rate based on a number of factors. Understanding these will help avoid disappointment when trying to get the lowest rate on a car loan, and will include:

• The age of the vehicle — the best rates will be for brand-new vehicles 
• The type of vehicle — lowest rates will be for vehicles under 4.5 tonne 
• The amount you wish to borrow — the best rates are on an amount you can easily repay 
• The length of your loan — lowest rates will be for the shortest term 
• Your credit history — best rates will be for perfect credit scores 
• Your net income — lowest rates will be for stable, high-income applications 
• If you own a property — the best rates will be for homeowners 
  

Money Tip

Financing a brand-new vehicle and having a perfect credit score are two key factors to getting a low-interest rate car loan.

Best car loan rates

The best car loan rates for a consumer will generally be fixed — this means the finance interest rate applied to your loan will remain exactly the same for the duration of the loan term. 

Fixed-rate interest car finance loans which provide immediate full ownership of the vehicle generally begin around 5.00%. With these loans, you generally cannot make additional repayments but you may be able to repay the loan earlier than initially agreed.

Money Tip

Fixed-rate interest is a guarantee by the lender that the interest rate on your loan will not change throughout the loan term.

The best car loan interest rates will be applied to secured car loans. The lowest interest rates on car finance are offered to borrowers who fit the profile below:

• Clean credit history 
• Able to provide a deposit 
  
• Regular, stable employment for two years 
• Financing a brand-new vehicle 
• Obtaining the car through a dealership or car franchise
• Living at the same address for two years  

Money Tip

These are example interest rates for car loans in Australia and are not indicative of the current rates available. Rates will vary and change from time to time, and for accurate, up-to-date rates you will need to speak to your broker or lender directly.

Loan borrowing limits

You can generally borrow between $5,000 and $100,000 — 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
$5,000	$100,000

Car 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).

The term of your car loan will affect your regular payment amount. The longer the loan, the lower the regular repayment amount, but the more total interest you’ll pay over the term. You can see in the table below how a longer loan term affects your monthly repayment amounts and the total amount paid.

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.

A brand-new vehicle purchased from a franchise or dealership — i.e. not a private sale — will often get you the lowest rates on a car loan. In the example below, you can see how three vehicles purchased from a dealership or franchise may affect interest rates.

Important: This is an example and actual rates will vary.

Car loan fees

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.

To quickly compare loan amounts and see your estimated repayments, use our free car loan calculator.

If you accept a long-term loan and are able to repay a significant amount early on in your loan term, the amount you save will often outweigh the early repayment penalties. 

In the example below, we’ve compared three car loans of $30,000, each with a term of seven years. The early repayment penalty for each loan is $20 per month repaid early. The sooner you repay your loan amount, the greater the amount of total interest you will save. 

Money Tip

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.

Cheap car loans

What is the cheapest car loan? First, answer this: what does ‘the cheapest car loan’ mean to you?

• Cheaper repayments over your car loan term; or 
• Lower total interest (cost) over your car loan term 
  

If you want to get cheaper repayments on your loan, you can consider:

• Choosing a longer-term loan 
• Including a balloon payment 
• Buying the newest model car you can afford 
• Avoid using a broker or intermediary like a car dealer 
• Comparing cheap car loans from mutual banks, credit unions and building societies 
  

If you want to pay a lower amount of interest, you should consider:

• A shorter-term car loan
• Go direct to the lender to pay the least amount of fees
  
• A car loan that allows you to make additional repayments; and 
• Pay-out the loan early without penalties

How to save $2,000 on your car loan

According to the Deloitte Motor Industry Services Q4 2019 Dealer Profitability report, car finance and insurance (F&I) packages in 2020 are costing Australian customers more than $2,000 in fees and commissions to car dealerships. The report details these figures as follows:

• Car dealerships sell an average of 42 F&I vehicles per employee, per month
• Dealerships average a total of $97,225 F&I income per month
  
  (The average F&I income per vehicle is $2,314.88)
  
  
• 32% of new car finance is through a dealership 
• 24% of used car finance is through a dealership 
• 22% of new and used car insurance is through a dealership 
  

Car dealerships sell new and used vehicles at a transactional gross loss (-$80 per vehicle in Q4 2019), and profit through new vehicle gross sales ($67), variable expenses ($715) and semi-fixed expenses ($1,435) to make a profit ($2,217 per new vehicle sold). 

However, they also provide car loans to customers, with many car buyers (32% of new-car buyers and 24% of used-car buyers) acquiring their finance this way, presumably due to the one-stop-shop nature of the transaction, but most likely because they were unaware of a better deal. 

Car dealerships don’t provide vehicle finance or insurance themselves; they’ll “broker” the deal between you and a panel of lenders and insurance providers, charging you an origination fee (some lenders allow up to $990 to be charged) plus taking a commission. This is exactly the same as using a vehicle loan broker (who will most likely also charge a fee) but generally with fewer available finance options to compare.

If you want to instantly save up to $2,000 on your car loan, compare your available vehicle finance options independently first. You can easily find and compare car loans online in just 10 minutes without needing to visit a dealership, speak to a broker, or spend a dollar.

Money Tip

Some car loans can be structured to allow early repayments without penalty. This can be a good option if you need lower repayments initially but plan to repay the loan in full before the end of your term.

Car loan balloon payments

Car loans can be structured to include a residual payment — also called a ‘balloon amount’ — which will result in cheaper car loan repayments throughout the term of your loan but will include a large, final payment. 

It’s important to realise that a balloon payment will not give you a lower interest rate or cheaper total car loan amount. It will only lower your monthly repayment amount which can often make it the most affordable option in the short term. 

If you choose a balloon payment to get cheaper car loan repayments you’ll have a couple of options about what to do at the end of your finance term. You will need to either:

• Pay the balloon amount to the lender and clear the remaining loan amount, or 
• Choose to refinance the remaining amount into a new car loan 
  

Important: This is a hypothetical calculation as an illustration of how balloon payments affect monthly repayment amounts.