Real Time Rating™
$2k to $75k
Buying a new or second-hand car? Make a fast and simple online application today and enjoy no ongoing fees or early repayment fees.
New - Prime Special (Variable)
Real Time Rating™
$5k to $100k
specialYou could win a $1,000 fuel voucher ~ Ends in 6 months
Drive away with a competitive interest rate, unlimited extra repayments and no ongoing fees. Apply online and you may be approved within 24 hours.
Plenti Car Loan
Real Time Rating™
$10k to $100k
Lock in a competitive interest rate and no ongoing fees with this secured car loan available for new and demo vehicles.
Car Loan (Good Credit and above)
Real Time Rating™
$2k to $2m
Green Car Loan
Real Time Rating™
$10k to $150k
Used Car Loan
Real Time Rating™
$10k to $150k
What’s new in car loans in May 2022?
Global new car shortages are still impacting Australia’s access to vehicles thanks to a shortage of microprocessor units impacting manufacturer’s ability to bring production back to speed.
This meant that the latest vehicle sales figures from the Federal Chamber of Automotive Industries from last month was down 12.2% compared to the same time last year.
For Australians not willing to join the new car waitlist, you may be considering purchasing from the supply for used cars already available. But before you head down to your local dealership, you may want to start comparing your financing options.
Here are some of the top-rated used car loans currently on offer, according to RateCity’s Leaderboards:
- Loans.com.au Use Car Loan – 3.59%
- Police Credit Union Low Rate Car Loan – 3.99%
- Australian Military Bank Car Loan – 3.99%
- People’s Choice Car Loan – 4.65%
Updated by Alex Ritchie on May 06, 2022
What is a car loan?
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 work vehicle, or a growing household looking to upgrade, purchasing a car is a significant financial commitment. But not everyone has the cash up front to pay for their ideal car.
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 upfront. When you take out a car loan, you will need to make regular repayments over a fixed term 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.
It’s generally a good idea to spend some time comparing your options when it comes to choosing a loan, rather than settling for what a car dealer might offer you. But keep in mind, simply looking for the products with lower interest rates isn’t the only thing you should consider.
Popular car loans
What types of car loans are available?
There are several different types of car loans on the market, each of which meet specific financing requirements, including:
- Unsecured Car Loans: Car finance where you don’t provide collateral
- Secured Car Loans: Car finance where you do provide collateral
- Balloon payment: Car loan repayments are divided up so that they begin smaller, with the borrower paying a larger portion of the loan (say 25%) at the end.
- Chattel Mortgage: A specialist car finance option for business use
- Operating Lease: More like a long-term car rental arrangement, involving a company leasing a car for an extended period
- Commercial Hire Purchase: Closer to a rent-to-buy arrangement, generally involving a finance company buying a car on your behalf and letting you use it in return for regular rental payments. After several payments, you may own the car
- Car Lease: Like a commercial hire purchase, but with more options. You rent the vehicle for a set period and at the end of the lease, you either return the car or buy it
- Novated Lease: Like a car lease, but with a more complicated ownership structure, as you acquire the car from a second party (usually an employer) which in turn leases it from a third party (a finance company)
- New Car Loans: For buying a car that’s under a certain age (often less than two years old)
- Used Car Loans: For buying a car that’s over a certain age (often more than two years old)
- Green Car Loans: For buying an electric, hybrid, or fuel-efficient car
How do car loans work?
A car loan is a formal vehicle finance arrangement between three parties: the buyer (you), the vendor (someone selling the car, typically a car dealership), and the lender (the organisation providing the money).
Obtaining and using a car loan works as follows:
- Search and compare car loans to find one that best suits your needs
- Submit an application for the loan with your ideal lender
- If your application is approved, the lender will agree to lend you a certain amount to buy a vehicle
- Sign a purchase agreement with the vendor
- The lender pays the vendor on your behalf
- You repay the lender, usually over a period of several years
Car loan amounts typically range from $5,000 to $100,000 and often have loan terms from 1 to 10 years. Interest rates generally vary between 2.99% and 10% for secured car loans, and up to 15% for unsecured loans.
Car loans often come with fixed rates so that your repayments remain the same for the life of the loan. Variable rates are also available, with features like extra repayments or redraw facilities often reserved for these loans. The interest rate on a car loan may often be lower than on an unsecured personal loan as the loan is typically secured by the car you are purchasing.
Finding the right car loan for your needs is a crucial part of the process. Everyone's financial situation is unique, so there's no one "best car loan" to cover every possible need. To help you find your best car funding option, you’ll want to compare your options and do your research.
So, where do you start? Once you know what sort of car you would like to buy, you’ll need to consider how much you can borrow before you start comparing loans.
Is a car loan just a personal loan for cars?
A car loan is a type of personal loan, specifically designed for the purchase of a vehicle. Where a personal loan can be used for a variety of purposes (holidays, renovations, weddings etc.), a car loan is used strictly for vehicle purchases.
A personal loan may be secured against a nominated asset, such as jewellery or art, or unsecured. A car loan is generally always secured against the vehicle itself as collateral for the loan. Most unsecured personal loans typically come with higher interest rates on average, as there may be more risk posed to the lender that the borrower may default if no collateral is provided.
Also, some lenders may not provide finance for vehicles of a certain age, with “used cars” typically referring to those between 1-5 years old. This means that if you wanted a long car loan term for a vehicle that was already 5 years old, the lender may reject your purchase.
If you’re tossing up between taking out a car loan or a personal loan, take into consideration whether you can afford the potentially higher rates associated with personal loans, the age of the car you want to buy and if you’re comfortable securing it as collateral.
Car loan benefits and disadvantages
Just like with any major financial decision, it’s worth weighing up the benefits and disadvantages of a car loan before you apply.
What are the benefits of a car loan?
- Car financing offers you access to vehicles that you might not have been otherwise able to afford.
- You don't have to repay a car loan immediately and can take as long as ten years to repay the loan.
- The car loan’s interest rate may be much lower than that of other finance options, such as an unsecured personal loan.
What are the disadvantages of a car loan?
- Car loans are typically secured against the vehicle, so if you default on the loan the lender has the right to seize this asset.
- 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.
- The amount you can borrow may be limited by your borrowing capacity and creditworthiness, as opposed to saving up over time.
How much can I borrow with a car loan?
Just because you’re applying for a car loan doesn’t mean the lender has to approve you for any loan amount you want. The amount you can borrow for a car loan is determined by your personal financial situation, including your income, expenses, and credit history.
Lenders need to assess your financial situation to ensure that not only can you afford loan repayments with your budget, but that you’re not at risk of defaulting on the loan due to past adverse credit events. This is why they request a copy of your bank statements and/or proof of income when you apply for a loan – they need proof that you can afford the repayments.
Curious as to how much you may be able to afford to borrow? RateCity’s Borrowing Power Calculator allows you to obtain an estimate of your borrowing power. 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?
When calculating how much you can afford to borrow, it could be a good idea to factor in the other costs involved with buying and owning a car to ensure you are budgeting correctly.
Keep in mind that even if you’ve previously owned a car, every car typically has different running and maintenance costs. These can include:
- Stamp duty
- Car insurance
- Petrol costs
- Regular services, maintenance, and repairs
- Road tolls
How to apply for a car loan
Applying for a car loan can be a simple process if you do your research and are well prepared. Here are six steps to applying for a car loan:
- Check your credit score: This should only take a few minutes to do through an online provider, usually free of charge. You’ll just need some identification such as your passport and driver’s license. Once you know your credit score, you’ll have a better understanding of which loans and interest rates might be available to you.
- Search and compare car loans: RateCity allows you to easily compare a wide range of car loan options, including low interest rate car loans, so you can find one that best suits your individual needs.
- Assess your budget: Use a car loan calculator to get an estimate of the total cost of the loan and what your weekly, fortnightly or monthly car loan repayments could be. This could put you in a better position to make an informed decision.
- Check the eligibility criteria: Once you have compiled a shortlist of potential car loans, check to see whether you meet all the eligibility requirements. Keep in mind that these can differ from loan to loan. Consider reaching out to the lender, or check the FAQs on their website, if you are unsure about anything.
- Prepare your application: If you're already comparing car loans on RateCity, you can click directly through to the lender's website where you can apply online for your chosen car loan. It might be a good idea to have all your required documentation ready before you get started.
- Submit your application and await a decision: Once you submit the information required, you may receive an immediate response from the lender with an update of your application status, or this may take a little longer. Car loan approvals can happen in as little as a few hours to as much as a few days
What are the requirements to get a car loan?
While each lender may have its own eligibility criteria, they generally all have the same requirements:
- Proof of age, identity and residence: You must be over 18 and an Australian citizen or permanent resident to qualify. You will need to provide your driver’s license and/or similar identification.
- Proof of income and expenses: Payslips, bank statements or similar documents to show that you can afford the car loan repayments with money earned from your job, while managing your other household costs.
- Details of assets and liabilities: Information on what else you own (e.g. your home, shares, other cars) and what you owe (e.g. credit cards, personal loans, mortgage).
- Proof of savings: Some lenders may request bank statements to view your spending habits and see if you can responsibly save money.
- Good to excellent credit score: Some car loans are only available to borrowers with a minimum credit score or higher.
- Information about the car and insurance: If you’re applying for a secured car loan, you’ll need to provide details of the vehicle to be used as collateral
How do you compare car loans?
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.
|Car loan factor||About|
|Interest rate||There are two parts to a loan’s interest rate: the advertised rate and the comparison rate. The advertised rate is just the interest rate you pay on the loan, while the comparison rate combines the advertised rate and the main fees, including any upfront and ongoing fees, based on a 5-year $30,000 loan. Assess both options in your comparison journey to better understand the total cost of the car loan.|
|Rate type||There are two interest rate types: fixed rates or variable rates. With a fixed rate loan, your repayments will be the same throughout the life of the loan, which could make budgeting more manageable. If you choose a variable rate, however, the rate can fluctuate based on the market during the loan’s term, meaning your repayments could potentially increase or decrease.|
|Loan type||Choose between a secured car loan, in which the vehicle is used as collateral on the loan, and an unsecured car loan. Lenders will typically charge higher interest rates for unsecured car loans because they regard them as riskier than secured car loans.|
|Loan term||A shorter loan term (1-3 years) may mean higher ongoing repayments but less interest charged overall, while a longer loan term (4-7 years) will mean lower ongoing repayments but greater interest charged overall.|
|Fees||Fees typically include the following:
|Features||Some car loan lenders offer helpful features including:
Ability to make extra repayments - Make additional repayments on top of your regular repayments so you may save money on interest and paying your loan off faster.
Redraw facility - Having a loan with a redraw facility means you may draw down on any additional payments you have made, which can come in handy if you need to access some extra cash down the track.
Who offers the best car loan?
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.
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 can be a great place to start when comparing car loan options. Comparison tables help you to compare apples with apples. Simply enter the amount you want to borrow and the loan term and then filter down your loan options based on the features in the above table. Then you can compare your options side by side to see how they stack up on several factors, including interest rate, monthly repayments, and Real Time RatingsTM score.
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 RatingsTM
Real Time RatingsTM 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 RatingsTM results are calculated live, so they are up to date as possible. Each car loan is given a score out of five, based on loan costs and flexibility. Real Time RatingsTM may help you to narrow down your shortlist of car loan options.
How do you get a car loan?
There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.
Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.
What is a car loan?
A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.
What is a loan term?
The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.
How do you get pre-approval for a Commonwealth Bank car loan?
You can apply for a CommBank car loan pre-approval online, over the phone or by visiting a branch. The steps to apply for CommBank car loan pre-approval are similar to any other car loan application and include the following:
- Consider checking your credit rating before applying for the loan. The lender uses your credit score and credit history to help determine your creditworthiness, and decide if you should be granted approval. Your credit score will likely also be used to determine what interest rate they are prepared to offer you.
- Gather all the required documents and your personal information. This should include proof of income, identity and residency.
- Review all the terms and conditions, interest rate and additional fees related to the loan to ensure it meets your requirements.
- Submit your application to CommBank for approval.
Commonwealth Bank will then review and confirm all your details and, if successful, offer you pre-approval. Once you receive the pre-approval for the car loan from Commonwealth Bank, you can start shopping around for a new car with the knowledge you have finances secured.
What is a loan-to-value ratio?
The loan-to-value ratio, or LVR, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have a loan-to-value ratio of 75 per cent. Loan-to-value ratios change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the loan-to-value ratio would now be 67 per cent.
Sally Tindall is the Research Director for RateCity and a regular commentator on television and radio about personal finance matters. Since she joined RateCity in 2015, she has covered mortgages, credit, loans, superannuation, and more, and is passionate about helping everyday Australians get access to affordable finance options, making budgeting and everyday expenses easier for all. Sally is a regular contributor to news outlets including Fairfax's Sydney Morning Herald and The Age, and News Ltd's Daily Telegraph, the Herald Sun and news.com.au. On TV, you can find Sally's expertise on programs from Seven, Nine, Ten, ABC, and SBS, and you can listen to Sally regularly on ABC Radio, 2GB, 3AW, 4BC, and a host of others.