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What is the maximum car loan term

What is the maximum car loan term

In the market for a new car loan? Depending on your budget and personal financial circumstances, you may be wondering what the maximum car loan term is that you can apply for.

Generally speaking, most car loan providers offer a maximum term of up to 7 years in Australia. Borrowers commonly tend to apply for loans in the 2 - 3-year range.

But there are a few car loan lenders offering longer car loan terms. As of writing this, there are four lenders offering maximum car loan terms of 8 years, and one offering a maximum car loan term of 10 years.

High car loan terms

Car loan providerProductMax Loan Term (in months)Minimum Loan Amount
People's Choice Credit UnionDiscounted Personal Loan

120

$20,000

Firefighters Mutual BankSecured New Car Loan

96

$10,000

Health Professionals BankSecured New Car Loan

96

$10,000

Teachers Mutual BankSecured New Car Loan

96

$10,000

UniBankSecured New Car Loan

96

$10,000

Source: RateCity.com.au. Data accurate as of 21.06.2021.

But while a 10-year car loan may sound like a competitive deal, it’s worth keeping in mind there are risks associated with longer term loans.

What are the risks and benefits of long car loan terms?

Put simply, the longer the car loan term, the lower your monthly repayments. But the longer the loan term, the greater amount of interest you will be charged over the life of the loan.

This may see the total cost of a car loan balloon well past the principal amount, even doubling the price in some extreme cases, depending on the loan term, interest rate and fees.

The shorter the car loan term, however, the less interest you’ll be charged overall but the greater your ongoing repayments will be. This is because you’re chipping away at the principal at a faster rate than spreading out those repayments over several years.

Currently, the average car loan interest rate on the RateCity database sits at 8.44 per cent. On a $20,000 car loan, here are how the different repayments would work out over various fixed loan terms.

Repayments on $20k car loan over different loan terms

Loan termMonthly repaymentsTotal cost of loanTotal interest charged
1 year$1,744$20,926$926
2 years$909$21,806$1,806
3 years$631$22,709$2,709
4 years$492$23,635$3,635
5 years$410$24,585$4,545
6 years$355$25,5585558
7 years$316$26,555$6,555
8 years$287$27,574$7,574
9 years$265$28,616$8,616
10 years$247$29,680$9,680

Source: RateCity. Note: Figures based on $20,000 car loan with a fixed rate, average interest rate set at 8.44 per cent, does not factor in fees. Data accurate as of 21.06.2021.

If you compared the 2-year car loan term versus the 5-year car loan term you can note the advantages and disadvantages of short- and long-term loans. While the 2-year car loan charges higher monthly repayments, you’re only paying $1,806 in interest over time.

If a borrower could afford these higher monthly repayments, this option may better suit their finances as they’re saving $2,739 in interest by not spreading out repayments over 5 years.

However, if a borrower needs to reduce their ongoing costs, a longer car loan term may offer some relief. The monthly repayments will be lower but, understandably, they will pay more interest over the life of the loan.

What car loan term best suits my finances?

If you’re not sure what car loan term may best suit your finances, it’s worth using a car loan calculator to work out the potential short- and long-term costs, just as was done in the above table.

After you compare your car loan options on a comparison table and narrow down a few choices, hop on to the RateCity Car Loan Calculator. There you can enter the amount you’d like to borrow, interest rate of one of your car loan options, as well as your loan term.

Now, play around with the car loan terms to view different results. If you know you can only budget for, say, $600 a month in ongoing repayments, you may choose a car loan term based on this monthly limit.

This is why there is no one best car loan term for each borrower. The right car loan term for you will depend on your budget, financial goals and situation.

Did you find this helpful? Why not share this article?

This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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Learn more about car loans

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 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 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.

What is a dealership?

A dealership is a car yard or a place where cars are sold.

Can you refinance a car loan with the same lender?

You may be looking to refinance your car loan to get lower interest rates or reduce the total monthly amount you have to pay. Often, this leads to the question ‘can I refinance a car loan with the same bank?’

While it’s always worth shopping around for a better deal or at least to compare offers from other lenders, you can sometimes refinance to a different loan with the same lender. It may be simpler,  as the lender already has your details and knows your repayment history. 

Having said that, knowing the terms offered by other lenders may help you negotiate a better deal with your current lender.

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 vehicle finance?

Vehicle finance, also known as a car loan, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Vehicle finance can be used for both new and used vehicles.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

Should I service my own car?

There are also costs associated with vehicle ownership, such as paying for petrol and the obligatory ongoing maintenance. But should you cut down on costs by servicing your own vehicle?

If you’re considering getting out the tool box, spanner, and grease-laden towel, you need to carefully weigh up the risks and benefits. A trained mechanic will need to complete certain tasks, while you may be perfectly capable to handle other aspects yourself.

If you’re short on time, it may be worth paying for the convenience of a full vehicle service. However if you’re trying to slash your expenses, there are some basic maintenance tasks that you can complete yourself.

You should call a mechanic if you’re unsure about a vehicle maintenance task you’re about to take on. However there are a number of maintenance tasks that you may be able to complete with your own two hands including:

  • Replacing your car battery
  • Changing the oil
  • Replacing worn windscreen wipers
  • Replacing blown fuses

Remember to keep your car’s body in good condition, by washing and applying a protective wax on a regular basis, too.

Always check your car warranty agreement as some new car purchases come with an extended car warranty provided your services are conducted at the vehicle service centre where you purchased the car. In these circumstances, you may find the service fee is capped, alleviating some of the maintenance woes.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

What are loan repayments?

Loan repayments are the regular payments you make to pay off your car loan. Loan repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.