Like seeing the road ahead, a solid understanding of car loans can help you navigate around the money potholes.
Should I get a car loan if I’m a student?
16 Feb, 2020
How can I get a car loan for a private sale?
16 Feb, 2021
How can I get a car loan with bad credit?
11 Mar, 2020
In the market for a new car? The table below features car loans with some of the lowest and variable interest rates on the market.
Product Features
Loans available from $5,000 to $100,000
Advertised
Rate (p.a.)
Comparison
Rate (p.a.)
Product Features
When buying a new car you have five main ways of financing the purchase:
There are other methods you can consider such as a credit card or refinancing your home loan to include a car loan. Carefully consider each option before you jump into buying a car.
Buying a car in a different state can be done in much the same way as within your home state, but there can be extra fees and costs to pay, like car transfer costs, title and registration costs, stamp duty (which can be higher in other states) and more. Financing a car in a different state shouldn’t be an issue if the lender is licensed in that state.
The options for luxury car finance are essentially the same as the options for regular car finance – e.g. a car loan, dealer finance, a novated lease etc. However, note there is a luxury car tax (LCT) currently payable on any car above a certain threshold, which (at the time of writing) is $75,526 for fuel-efficient cars and $67,525 for other cars. Also, be wary that the tax benefits of novated leasing may be fewer on a luxury car compared to a non-luxury car.
To help you separate the good car loans and the bad car loans, this little summary should do the trick.
A quick scan of the market at the time of writing (Jun 2020) for a variable rate new secured car loan shows you could get a rate of 4.69% (7.16% comparison rate) from one lender, which is pretty low. At the other end of the scale, another lender is offering a loan with an interest rate of 9.99% (10.88% comparison rate).
But don't focus too much on the advertised interest rate at the expense (pun intended) of looking at the fees. There are some lenders who advertise a low rate on the loan, and it very well might be, but they might make up for it with exorbitant fees instead. As we explained earlier, looking at the comparison rate can help prevent you from falling for such traps, because they factor in upfront and ongoing fees. But some incidental fees (such as the costs of refinancing or early payout fees) aren't factored into the comparison rate, so it's worth looking into these to prevent being caught off guard in the event you need to pay them.
Some car loan features to consider in a car loan include:
Don't go for convenience over affordability, flexibility and practicality. If you just walk into any dealership and accept the first financing deal you're offered, you're more likely to be stuck with inflexible terms, a lack of ongoing support and higher interest rates and fees. Always compare other options before you sign up to anything and read as much as you can about car loans to check if you're getting a good value deal.
Read more about the differences between dealer finance and car loans. To spot a scam car loan, ASIC recommends first checking if they're on their list of unlicensed companies.
Below are some commonly asked questions about car loans, though you can learn more with our free car loan guide.
There are two main types of car loans: secured, which use the car as collateral for the lender, and unsecured, which do not. Another common type is known as car loan with balloon payment. A balloon payment or “residual value” is an agreed-upon lump sum that you will pay to your lender at the end of the car loan term.
A secured car loan is one where an asset (the car you’re buying) is used as collateral against the loan, and can be reclaimed by the lender if repayments aren’t met. Unsecured car loans do not use your car as security. Secured car loans are generally less risky for lenders to provide, thus often have lower interest rates.
Low doc car loans are ‘low documentation’ car loans, available to people who can’t provide the usual documents needed to apply for one. They’re commonly used by self-employed people who can’t easily provide proof of income. Instead, a good credit history and proof of business ownership will often be enough. Low doc car loans may carry a higher interest rate than a standard car loan.
There are lots of different car loan terms available, but most reputable lenders will allow terms between one and seven years, with 10 years usually being the maximum. Your car loan term is how long it would take to pay off the car loan without any extra repayments.
Car loans and dealer finance can be acceptable methods of car financing, so long as you do your due diligence and shop around. Dealer finance can often have faster approval times and lower interest rates compared to car loans, but they can also be less flexible and more restrictive. If you’re torn between the two, consider walking into a dealership with a pre-approved car loan under your belt and negotiating with the dealer to see if they can offer a better rate. For any type of car financing, be sure to take all the fees into account and look at what the total cost of the finance would be at the end of the term.
Your eligibility for a car loan will depend on a variety of factors such as:
Having a bad credit rating doesn’t disqualify you from getting car loans, but you might find it harder to get a good one.
If you have bad credit, you can boost your chances of being approved for a car loan by:
Also, work towards improving your credit history beforehand by paying bills and credit card repayments on time.
Basic car loan requirements often include:
Not having these on hand could reduce or eliminate your chances of having a loan application approved.
There can be many ways to get a low-interest car loan, but one of the best ways could be to maintain a clean credit history. This tells lenders you’re a trustworthy borrower, making them more likely to give you a good interest rate. Also, don’t forget to shop around to see which lenders are offering the lowest rates. Secured car loans also tend to have a lower interest rate than unsecured loans.
Getting approved for a car loan as a student might be harder due to your lack of a credit history and lower income. But your chances of being approved for a student car loan can increase if you:
Salary sacrificing for a car can be done through novated leasing, which can be a viable option for car buyers. Salary sacrificing is an agreement between you, your employer and the finance company where your employer agrees to let you take your car loan repayments straight out of your pre-tax salary.
Salary sacrificing for a car can generate significant tax savings for some (consider talking to a registered tax agent about this), but since you don’t own a car (under a lease arrangement) there can be some limitations (e.g., driving restrictions, cannot make modifications etc.).
Yes, you can refinance your current car loan to a different car loan with different terms, or a different lender with a lower interest rate. When refinancing a car loan, the money borrowed from the new loan will cover the balance of your previous car loan, allowing you to pay off that old car loan before moving onto the new one.
You might be anxious to get into your hot new wheels, but before you even consider going to a dealer or lender, you'll need to have a handful of forms and documents on you so they can get the measure of you as a person and as a borrower. Remember, it's their money that you're being lent, so your trustworthiness and strength of character will play a huge part in the terms you get given. When formally applying for a car loan, you'll generally need:
Once all of that nerd stuff is out of the way, you can dive in and apply for your car loan - assuming you've done some thorough research into which one is best for you. Thankfully, applying for a car loan in the modern age is quick and relatively painless, as there are a host of entirely online-lenders that can fast-track your application if you have all of this information handy. The usual process involves:
Bear in mind that those of you who are under 18 or not yet an Australian citizen may not qualify for a standard car loan product.
A pre-approval car loan can be beneficial as it lets you know what you can afford before you go out to buy a car. To get a pre-approved car loan:
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
Some providers' products may not be available in all states.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*The Comparison rate is based on a $30,000 loan over 5 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
Should I get a car loan if I’m a student?
16 Feb, 2020
How can I get a car loan for a private sale?
16 Feb, 2021
How can I get a car loan with bad credit?
11 Mar, 2020
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