Car loan comparison

Despite higher-than-expected inflation levels and the current cost of living pressures, new car sales in Australia are continuing to climb, with the Federal Chamber of Automotive Industries (FCAI) recording over one million sales in 2023. 

Across October, 106,908 new vehicles were delivered to Australian customers. In fact, the last six months have delivered five all-time sales records compared with previous years. Out of these October sales, 38.3% were either light commercial utes, large, or upper large SUVs vehicle categories. 

If you’re on the hunt for a new vehicle, you may need car finance to make your purchase. Comparing car loans can potentially become much simpler when you check out the top-rated car loans according to RateCity’s Real Time Ratings™.

Some of the top-rated new car loans at the time of writing include:

• Horizon New Car Loan - 5.99% fixed (comparison rate 6.20%)
• Police Credit Union Low Rate Car Loan - 5.99% variable (comparison rate 6.26%)
• Greater Bank New Car Loan - 5.99% (comparison rate 6.37%)
• SWSCU Fixed Vehicle Loan - 5.79% (comparison rate 5.79%)
• FSCU Chief Car Loan - 5.99% (comparison rate 6.33%)

Having a car is an essential part of life for millions of Australians. Whether you’re a first-time driver looking for a used car, a tradie searching for a new work ute or van, or a growing household in need of a larger vehicle, purchasing a car is a significant financial commitment. However, not everyone has the ability to pay cash up front to cover the cost. 

A car loan is a specific type of personal loan that you can use to buy a new or used vehicle when your savings won’t cover the total cost. When you take out a car loan, you will have to make regular repayments over a fixed period towards the lump sum you borrowed (the principal), as well as interest accrued. The interest rate will apply on the loan amount from the time you take out the loan. 

The amount of interest you’ll pay on a car loan depends on several factors. This includes personal variables, such as your job stability, income levels, credit score, repayment track record, and the specific car model you choose. Additionally, fluctuations in the cash rate, as determined by the Reserve Bank of Australia (RBA), can influence the interest rates on your loan. 

Remember that picking the right loan isn't just about going with whatever a car dealer suggests - take some time to compare your options. But keep in mind, it's not just about scoring the lowest interest rates. You also have to be on the lookout for the different fees that lenders might charge. 

Apart from the application fee for processing your loan, some lenders might hit you with ongoing annual or monthly service fees. If you decide to pay off your loan early, be aware that you may encounter a prepayment penalty. 

When you're in the market for a car loan, make sure to give the lender's Product Disclosure Statement (PDS) a good read. That's where you'll find all the nitty-gritty about the fees. Going for a car loan with minimal fees can save you some cash in the long run. So, don't forget to crunch the numbers, considering both the interest rate and fees, before making your choice. 

Remember that choosing the right car loan is like picking the best route for your journey. There are multiple options available on the market but the right one for you depends on your personal situation, preferences, and budget.

Before you start searching for a car loan, consider learning about the different types of loans to identify the most suitable loan type for you and your situation. If you need help, speaking with a car loan broker could help. Like a mortgage broker, a car loan broker can help you find a car finance option that suits your needs and budget. 

There are several different types of car loans on the market, each of which meet specific financing requirements, including: 

New car loans

New car loans are tailor-made for individuals looking to purchase vehicles with relatively minimal mileage and typically not exceeding two years from their manufacturing date. These loans are for those who prefer the latest models and the assurance of a full manufacturer's warranty. They often come with low interest rates and flexible terms, making them an attractive option for those who want to drive a brand-new vehicle without making a large upfront payment. 

Used car loans

Used car loans are designed for those looking for vehicles that have surpassed a certain age threshold, typically more than two years since their production. These loans cater to buyers who prefer pre-owned cars, often for their cost-effectiveness. Interest rates on used car loans may be slightly higher than those for new cars due to the increased risk, but they provide an affordable way to get behind the wheel of a reliable, well-maintained vehicle. 

Be mindful, though, as used car loans often come with conditions regarding the car's age. It's wise to check these before applying for a loan since the age of the car impacts eligibility and repayment terms. 

Most lenders set a maximum age, typically around 10 to 15 years, ensuring the car remains functional throughout the loan. If you seek an extended term, like a five-year car loan, some lenders may reject your application if your chosen car is nearing their age limit. 

Green car loans

Green car loans are available to buyers interested in vehicles that embrace environmentally-conscious technology, such as electric, hybrid, and fuel-efficient models. These loans are a testament to Australia's commitment to sustainability and eco-friendliness. They often come with competitive interest rates and additional incentives, making them a popular choice for those looking to reduce their carbon footprint and save on fuel costs. 

Secured car loans

Secured car loans are secured by the vehicle you're purchasing. If you default on your loan repayments, your lender may repossess the car you bought to recover their losses. These loans generally come with low interest rates and favourable terms, making them an attractive choice for those who are confident in their ability to make timely payments. 

Unsecured car loans

Unsecured car loans are not secured by the value of an asset, such as the vehicle itself. This means that if you default on your loan repayments, your lender cannot repossess the car you have purchased. While these loans often provide greater flexibility and do not put your car at risk, they typically come with higher interest rates to compensate for the increased lending risk. Unsecured car loans may be a good option for those who do not want to use their vehicle as collateral. 

Balloon payment

A balloon payment is a unique feature of some car loans where repayments are divided up so that they start smaller, and the borrower pays a larger portion of the loan (often around 25%) at the end of the loan term. This can help make monthly payments more affordable, but it's important to be aware that a substantial balloon payment will be due at the end of the loan. 

Chattel mortgage

Chattel mortgages are a finance option when you want to buy a vehicle for your business needs. The lender puts a legal claim on the item you're financing as collateral for the loan. This means that they can take it back if you don't keep up with your payments. But once you've paid off the loan in full, the ownership of the vehicle is all yours. 

Operating lease

An operating lease is similar to a prolonged car rental agreement where a company leases a car for an extended period.

Commercial hire purchase

Commercial hire purchase is like a rent-to-own arrangement, often involving a finance company purchasing a car on your behalf and allowing you to use it in exchange for regular rental payments. After making several payments, you may be able to own the vehicle. 

Car lease

Similar to a commercial hire purchase, a car lease offers flexibility. You rent the vehicle for a specified period, and at the end of the lease term, you can choose to either return the car or purchase it. Some leases even provide options for customers to trade in their current vehicle to upgrade to the latest model. 

Novated lease

A novated lease is similar to a car lease but involves a more intricate ownership structure. In this arrangement, you acquire the car from a second party, typically your employer, who, in turn, leases it from a third party, usually a finance company. 

As is the case with any significant financial decision, it’s worth weighing up the benefits and detractors of taking out a car loan.

What are the benefits of a car loan?

• Affordability: Car loans allow you to purchase a vehicle without having to pay the entire purchase price upfront. Instead, you can spread the cost over a period of time, making it more affordable and manageable for many people.
• Convenience: Car loans provide convenience by enabling you to drive the vehicle immediately while making monthly payments. This allows you to have access to a car without having to save up a large sum of money first.
• Credit building: If you have limited credit history or want to improve your credit score, responsibly repaying a car loan can be beneficial. Consistently making payments on time demonstrates financial responsibility, which can positively impact your creditworthiness.
• Ownership: Unlike leasing, car loans allow you to own the vehicle outright once you've paid off the loan. This means you can modify or sell the car as you please without any restrictions.
• Low, fixed interest rates: A car loan's interest rate may often be much lower than that of other finance options, such as an unsecured personal loan. Additionally, car loan interest rates are typically fixed over the life of the loan.

What are the disadvantages of a car loan?

• Interest and total cost: One of the main disadvantages of car loans is the additional cost you incur due to interest charges. The longer the loan term and higher the interest rate, the more you'll end up paying in total. It's essential to consider the interest rate and loan term when evaluating the affordability of a car loan.
• Depreciation: Cars generally depreciate in value over time. If the loan term is long and you put a small down payment, you may owe more on the loan than the car's value. This situation, known as being "upside down" on the loan, can make it challenging to sell or trade in the vehicle without incurring a loss.
• Debt and financial obligation: Taking on a car loan means taking on debt. If you're already dealing with other debts or have a limited income, adding another loan payment to your monthly expenses may strain your budget and financial stability.
• Repossession risk: If you fail to make timely payments, there is a risk of repossession as car loans are typically secured by the purchased vehicles. If you default on the loan, the lender may seize the vehicle, which can have severe consequences for your credit score and financial situation.
• Limited flexibility: Once you commit to a car loan, you're locked into the repayment schedule and terms. If your financial circumstances change, such as a job loss or income reduction, it can be challenging to modify the loan agreement.
• Restrictions: Your lender may have restrictions on the type of car you can buy, such as if it is new or used, or a sports car, etc.

When it comes to securing a car loan, it's helpful to recognise that a lender is not obliged to provide any requested amount. They assess your individual financial circumstances, such as your income, expenses, and credit history, to establish the maximum borrowing limit available to you.

Lenders aim to ensure that you can comfortably manage loan repayments without encountering any difficulties, especially if you have a history of credit issues. This is why they request documents such as bank statements and proof of income when you submit a loan application. They require tangible proof that your income is sufficient to cover the loan installments.

Curious as to how much you may be able to borrow? RateCity’s Borrowing Power Calculator allows you to obtain an estimate. Simply enter how much you want to repay, the repayment frequency (weekly, fortnightly or monthly) and the loan interest rate. The calculator will then show you a projection of how much you may be able to afford to borrow.

Before you apply for any financial product it’s worth checking your credit score. Car loan lenders' eligibility criteria for loans typically dictates that those with good to excellent scores are preferred applicants.

Errors can occur and so can negative credit events, so if you believe your credit score has fallen, or if you’re working on boosting it, you’ll want to check what your score is before applying. After all, if your car loan application is rejected, this may further hurt your credit score.

Are there any other costs to consider?

Figuring out how much you can comfortably borrow isn't just about the loan itself. You've got to factor in all the extra costs that come with buying and taking care of a car. This way, you can budget smartly and avoid any financial headaches.

And remember, even if you've owned cars before, each one comes with its own set of costs for running and upkeep. Some of the main things to think about when you're adding up the total cost of owning a car are:

• Stamp duty: When purchasing a car, you may be required to pay a one-time stamp duty fee. This fee may varies based on the value of the vehicle and the state you reside in.
• Registration: Every car must be registered with the appropriate authorities. Registration fees vary depending on your location and the type of vehicle you own. These fees are typically renewed annually or biennially.
• Car insurance: Acquiring car insurance is crucial to protect yourself and your vehicle in case of accidents, theft, or damage. Insurance premiums vary depending on factors such as your age, driving record, location, and the type of coverage you choose.
• Petrol costs: Fuel expenses constitute a significant portion of car ownership. The cost of petrol varies based on the fuel efficiency of your vehicle, the distance you drive, and the prevailing fuel prices in your area.
• Regular services, maintenance, and repairs: Cars require regular servicing to maintain optimal performance and ensure longevity. Routine maintenance tasks such as oil changes, tire rotations, and brake inspections incur costs. Additionally, unexpected repairs due to wear and tear or accidents may arise.
• Tolls: Depending on your location, you may encounter toll roads or bridges that require payment for use. These fees can add up over time, especially if you frequently commute on toll routes.

By accounting for these various expenses, you can obtain a more comprehensive understanding of the financial commitments involved in owning a car. This knowledge will assist you in determining a suitable borrowing amount that aligns with your budget and allows for the smooth operation and maintenance of your vehicle.

To help you compare car loan options and choose the right one for your financial needs and situation, you’ll want to understand the factors that go into a car loan.

Who offers the best car loan?

If you’re looking for a loan to purchase a car, you might consider going with the cheapest car loan, assuming it is the best choice. However, a low interest rate doesn’t necessarily equate to a cheap or suitable loan for your circumstances.

Lenders often charge various upfront and ongoing fees that could significantly increase the overall loan cost. Further, a loan with a slightly higher interest rate may come with valuable features, such as the option to make extra repayments without any penalties. This flexibility could help you pay off your loan sooner, potentially saving you more money in interest compared to a car loan with a lower interest rate but no option for extra repayments.

The best car loan is the car loan that best suits your financial situation and car goals. There are dozens of car loan providers in Australia, and you shouldn't assume your current bank will offer you the lowest interest rate or the most suitable loan for you. Moreover, it’s important to consider factors beyond interest rates when comparing loans to make an informed decision based on your specific needs and goals.

Shopping around and making car loan comparisons is a key part of the process, and RateCity allows you to compare car loans by costs and features with its helpful tools, which considerably reduces the time it takes for you to do your research.

Comparison tables

When exploring car loan options, comparison tables serve as an excellent starting point. These tables facilitate a like-for-like comparison, enabling you to make an accurate assessment. To begin, input the desired loan amount and term, and then narrow down your options by filtering the features listed in the table above. This way, you can effectively compare multiple factors such as interest rates, monthly repayments, and Real Time Ratings^TM score, side by side, to determine the most suitable choice.

Repayment Calculator

Once you have a short list of car loan options, you may want to see how they stack up against your budget. One way to do so is to use RateCity’s Repayment Calculator, which allows you to enter in a car loan’s details and repayment frequency to see how much loan repayments potentially may be.

Real Time Ratings^TM

Real Time Ratings^TM is RateCity’s world-first rating system that ranks personal loans based on your individual requirements. Unlike other comparison pages which rank their products once or twice a year, Real Time Ratings^TM results are calculated live, so they are as up to date as possible. Each car loan is given a score out of five, based on loan costs and flexibility. Real Time Ratings^TM may help you to narrow down your shortlist of car loan options.