Car loans Australia
A car loan is a type of vehicle finance product used to purchase a car. A car loan uses the purchased vehicle as security (collateral) on the loan, which allows borrowers to access lower rates than unsecured finance options. Car loans in Australia have a maximum term of seven years and a borrowing limit of $100,000.
To ensure you get the best car loan, compare all your options. You can apply for a car loan with banks, car dealerships, car finance brokers or online lenders. Unsecured car loans are not a financial product; they are categorised as personal loans.
Car loan or personal loan?
|Car loan||Personal loan|
The amount you can borrow with a car loan will be relative to the value of the car you are purchasing. A car loan is generally a better deal than a personal loan, as the risk to the lender is reduced.
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.
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:
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.
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 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.
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
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
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:
- 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 using a bad credit car loan.
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:
- 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.
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
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.
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
Low-interest car loans
|Type of car loan||Example interest rates|
|Secured car loan||From 5.00%|
|Private sale car loan||From 6.59%|
|Chattel mortgage||From 5.49%|
|Bad credit car loan||From 15.00%|
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|
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).
Car loan minimum and maximum terms
|Minimum Term||Maximum Term|
|2 years||7 years|
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.
How car loan terms change loan repayments
|Loan amount||Interest rate||Term||Monthly Repayments||Total interest amount|
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|
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.
New car vs used car loan interest rates
|Brand-new||2 years old||5 years old|
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.
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.
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.
Early repayment fees vs interest savings
|Term||Total Interest Amount||Repaid After||Early Repayment Fee||Interest Saved|
|7 years||$9,277.26||2 years||$1,200||$4,840.82|
|7 years||$9,277.26||4 years||$720||$1,812.11|
|7 years||$9,277.26||6 years||$240||$814.56|
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.
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
Car loan balloon payment example
|Loan amount||Loan term||Balloon Amount||Interest Rate||Monthly Repayments|
Important: This is a hypothetical calculation as an illustration of how balloon payments affect monthly repayment amounts.
A car loan is a secured loan used to purchase a car. As the car is used as security you will most likely pay less interest than other types of car finance.
Lenders will offer various interest rates to car loans in Australia depending on the profile of the borrower. The rate applied to your loan will depend on your credit history, employment history, the age of the vehicle and the type of lender you apply with.
Car loan terms range from two to seven years and you can borrow up to $100,000 (the average is $30,000). You can apply for a car loan in Australia with banks, car dealerships, car finance brokers or online lenders.
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 a private sale
Title of this 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 standard vehicle finance, and will generally need to apply for 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, want to finance a brand-new vehicle and are willing to provide a deposit.
Can I buy a car through a private sale?
Yes, you can purchase a vehicle through a 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.
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; some loans will come with early repayment fees. Depending on how much you repay and how soon into your loan term you make extra repayments, 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.
How can I get the lowest interest rates on a car loan?
You can get the lowest interest rates on a car loan by presenting as little risk to a lender as possible. Rates are directly tied to your risk level — the lower the risk of failing to meet your repayment obligations throughout the term, the lower the available rates.
Where can I find the lowest car loan interest rates?
The lowest car loan rates will be offered by non-bank lenders and will require you to apply directly. Banks may also offer low-interest car loan rates, and using a broker will allow you to compare offers to find the lowest rate. Keep in mind, a low rate is not always the cheapest car loan.
Does the type of vehicle affect car loan interest rates?
Yes. The vehicle you wish to finance will influence the interest rate applied to your loan. A brand-new vehicle will generally get you the lowest rates — for each year a car is used beyond brand-new status, the rate will increase.
How can I pay lower interest on a car loan?
The two easiest ways to make sure you pay the least amount of interest on a car loan is to agree to a loan with the shortest term that you can comfortably afford to service. Alternatively, you can choose vehicle finance that allows you to make early repayments, and pay off your loan early to limit the total amount of interest paid on your car loan.
Who offers cheap car loans?
Cheap car loans are offered by a variety of lenders in Australia, though the cheapest car loans can be found by applying directly to Credit Unions, Mutual Banks, Building Societies and some online lenders. When considering a cheap car loan, take into account any fees that may accompany your application, such as establishment fees, broker fees, and ongoing monthly fees.
0% interest car loan offers
A car loan with a 0% annual percentage rate (APR) enables you to purchase a car at an agreed price and make monthly payments on the principal loan amount without paying interest. There are important factors to consider on a 0% car loan, including: 0% interest may only be applied to part of the loan term You will need an excellent credit rating to apply 0% may only be offered on some cars — often vehicles a dealership is desperate to sell
Can I finance any type of car?
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. The vehicle must be no older than 12-15 years at the end of the loan term Most financiers will not lend on used, imported vehicles (e.g. Nissan Skyline) The vehicle cannot have a negative report on the Personal Property Securities Register (PPSR) You can finance most vehicles with a car loan; newer vehicles and vehicles purchased from a dealership or established car franchise will be easier to approve for a car loan.