Car Loans Guide

Are you in the market for a car? Whether it is new or used, RateCity has a range of car loans to help you turn your dream into reality.

Our Car Loans Guide will assist you with any questions you may have when comparing car loans online. We explain the difference between the types of loans available and how to prepare yourself when applying to hopefully make the process a lot easier for you.

What to consider when choosing a car loan:

1. Loan Amount

When applying for a car loan it is important not to sell yourself short by under-borrowing or adding extra financial pressure on yourself by over-borrowing.

The amount you should borrow will depend on the price of the car that you wish to purchase and how much of your own money you will use towards the car. It will also depend on what you can afford to make in repayments.

First you will need to work out a monthly budget to see the amount of money you will be able to afford to put towards paying off your car loan. Use our car loan repayment calculator to see approximately what your loan repayments will be.

Also keep in mind that some lenders also have a minimum and maximum amount that you can borrow so be sure to keep within their limitations.

2. Loan Type

There are a number of different types of car loans available depending on your needs including:

Variable: A variable car loan is where the interest rate may fluctuate depending on the lender. So if your financial institution increases the interest rate your repayments will increase and if they decrease so will your repayments. This type of loan is harder to budget for as your repayments may vary from month to month.

Fixed: A fixed car loan is a type of loan where the interest rate is fixed for the term of the loan, so the repayments will stay the same. Because of this it is easier to budget for a fixed loan compared to a variable loan; however, fixed rates tend to be higher than variable rates.

Secured: With a secured car loan, generally the car you wish to purchase is used as an asset for security against the loan. For lenders this type of loan is seen as lower risk due to the fact that if you default on your repayments they can repossess your vehicle and sell it to pay off your loan. Because of this fact, secured car loans generally offer better interest rates.

Unsecured: Unlike secured loans, unsecured car loans do not require the car as security against the loan. Instead you need to prove that you can meet the repayments by showing a history of savings or if you have previously had a loan or a credit card that you met the repayments. Some borrowers may not have the option of choosing between secured and unsecured car loans but with so many to choose from on RateCity you are bound to find one that is great value and suits your requirements.

3. Car Type

Are you looking for a new car or a used car? Which one you choose and the age of the car will determine what type car loan you may require.

New car loan: A new car loan is a type of personal loan available to fund the purchase of your new car. With this type of loan, there are usually conditions about the age of the car that you wish to purchase. These however will differ between financial institutions as some may offer new car loans to brand new cars only, while some may consider a new car no more than two years-old or with a certain amount of kilometers on the clock.

Interest rates for new car loans are usually a bit lower than a used car loan as this type of loan is seen as less risk to the lender because new cars are generally worth more than older models.

Used car loan: A used car loan allows you to borrow money in order to purchase a used car only. Depending on the financial institution, there may be restrictions on the age of the car in order to be eligible. For example some may offer this type of loan to cars that are between two to five years-old. Be sure to check with your lender for terms and conditions.

The other major difference between a used car loan and a new car loan is that interest rates may be a little higher for used car loans. Much like a new car loan, there are also a range of secured and unsecured used car loans available to choose from.

4. Preferred Features

There are a range of features attached to car loans, however these will depend on the type of loan and the lender. Some of the preferred features are:

No early exit penalty: Whether you can pay out the loan early or before the end of the term without being penalised with a fee. This will differ between lenders and the type of loan you apply for.

Extra repayments allowed: This determines whether you are able to make extra repayments on the loan. If this is allowed, you will also need to find out if you will be charged and if there is a limit on how many repayments you can make within a certain time frame. Make sure you find out from your financial institution before applying.

5. Star Ratings

To help you better compare car loans, CANSTAR CANNEX has allocated star ratings to most car loans listed on RateCity. These star ratings are a benchmark rated on the interest rates, fees and features in comparison to other car loans. The ratings are from one to five with five being outstanding value.

When comparing car loans, you can use these star ratings to help you find a product that best suits you.

6. Checklist

Below is a checklist of some documentation that you may need to support you car loan application, so once you find the right loan for you, you will be prepared.

• Identification: Usually when applying for a loan you need to provide identification in accordance with the ID check system. Have your driver’s license or passport ready as well as your birth certificate and Medicare card or two additional cards with your name and photo on them, to prove you are who you say you are.

• Contact details: Make sure you have all of your contact details such as address and phone numbers to fill out the application faster.

• Copies of bank statements: Most lenders will ask for copies of your bank statements from the past few months to see that you have a savings history.

• Credit history records: If you have any credit cards or other loans they may ask to see copies of the past few statements for evidence that you can meet the repayments and have not defaulted. If you’ve never held a loan or a credit card before, don’t worry, proof of income and any bills such as phone or electricity and even rental payment receipts can all count towards your credit history.

• Proof of income: In order to prove you earn the amount that you state on your application you will need to provide pay slips from the past few months. If you don’t have copies of these you may be able to use your most recent tax return or group certificates, however check with your lender to see if they will accept these.

• Car details: If you are using the car to secure against the loan you will need to provide details of the car such as registration and engine number. If you buy it from a dealer you may need to provide details as your lender may need to make a cheque directly to them. You may also need a copy of the receipt when you purchase it to prove the cost.

7. Star Ratings

CANSTAR star ratings are a consumer-friendly benchmark that help you compare financial products based on their rates and features. We evaluate literally thousands of products from hundreds of finance institutions. Products offering superior value are awarded five stars.

Only the top 5% to 10% of products scored using the CANSTAR star ratings methodology are awarded the prestigious five star status. As a consumer, this is your guarantee of a high-performance product.

For more information on Star Ratings, check out our Star Ratings page

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