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Whether it's to get to work, take the kids to school or hit the open road, owning a car is essential for many Australians. If you want to buy your first car or upgrade to a new vehicle, a car loan may help turn your dreams into reality.

How do Australian car loans work? 

Australia's car loan market is very competitive, so there are plenty of lenders and loan types to choose from to finance your new car. There are various ways you can get a car loan. You can go directly to the lender, or you can use a comparison website, a finance broker, or a car dealer. 

Whichever you choose, the loan provider will purchase the car for you, and then you make repayments towards the cost of the car (plus interest charges and fees), over a set period of time. The car loan will allow you to eventually own the car outright.

What types of car loan are available?

The two main types of car loans are secured or unsecured loans. Read more about these loan types to find out which one is best for you. 

There are many factors that go into choosing a car loan, including deciding whether you want an interest ratethat is variable or fixed. Features may include the option to make flexible repayments or introductory offers with low interest rates for a fixed period.

The two main types of car loans are secured car loans and unsecured car loans. They are both a specific type of personal loan.

In addition to this distinction, there are many factors that go into choosing a car loan. In order to make a comprehensive car loan comparison, consider the following features:

Interest rate

Comparing interest rates can be a good way to begin your car loan comparison. However, it's important to also consider the product's comparison rate, which factors in the main fees attached and can give you a better idea of the overall cost of the loan.

Interest type 

Choosing between a variable rate or fixed rate car loan will come down to your personal circumstances. A fixed rate car loan may give you more certainty as your car loan repayments will remain the same throughout the length of the loan. Meanwhile, a variable rate can fluctuate in response to the market.

Loan amount

If you know what kind of car you want to buy, you'll likely already have an idea of how much you'll need to borrow. Keep in mind that some lenders may require a deposit, but others may not.

Loan term

Car loan terms typically range from three to five years, but some lenders may offer longer or shorter terms. Generally speaking, the longer your loan term, the smaller your repayments will likely be, but the more you'll end up paying in interest.

Secured or unsecured

If you're buying a new car, it's likely you'll opt for a secured loan with your new vehicle put up as collateral. Secured car loans often have lower interest rates as they are less of a risk to the lender. Used vehicles, however, may only be eligible for unsecured car loans. Though, depending on the age and condition of the vehicle, there are plenty of used car loans that are secured.

Car loan repayments

Many lenders will give you the option to make your repayments on a weekly, fortnightly or monthly basis.

Loan fees

The fees payable for a car loan will differ from one lender to the next. However, they may include some or all of the following:

  • Upfront application fees
  • Establishment fees
  • Redraw fees
  • Late payment fees
  • Early repayment fees
  • Exit fees
  • Monthly fees
  • Service fees
  • Other ongoing fees

Loan features

Some of the features that you may find beneficial to your needs include:

  • Unlimited extra repayments - If you are hoping to pay down your loan faster than its term, or simply make one-off lump sum payments when you have the money (such as a tax return), you may want to consider choosing a car loan that offers unlimited extra repayments.
  • A redraw facility - If you want to make additional repayments but still have the flexibility to redraw the money when needed, a redraw facility may be a helpful option.
  • Balloon payment - If you want to keep your regular repayment costs down, a balloon payment might be an option worth considering. A balloon payment is a one-off lump sum that you pay at the end of the loan term, keeping your monthly repayments low. It's important to have a plan in place for paying the lump sum once the time comes.

How do you find the best Australian car loan?

The best way to find the best car loan for you is to do your research. Decide what type of loan you want and the features that you need, then use comparison tools, such as tables and calculators, to narrow down your options.

Do you want a fixed interest rate or variable one? Do you want the flexibility of being able to make extra repayments or redrawing extra repayments? Comparison tables allow you to filter down loan options until you have a shortlist to choose from.

Is the cheapest Australian car loan the best?

The cheapest loans (or those with lower interest rates) may not necessarily be the best option for you. This is why looking at the comparison rate is a helpful way to gauge what you’ll actually pay.  

Comparison rates help determine the real cost of the loan. They include the interest rate as well as most applicable fees and charges.

Interest Rate Fees & Charges Comparison Rate 
Car Loan A9%0.5%9.5%
Car Loan B9.25%0.1%9.35%

Source: RateCity.com.au

Car loan B may have a higher advertised interest rate, but it will likely end up costing you less than car loan A. This is how comparison rates can be a helpful tool in choosing your car loan.

Keep in mind that if you opt for a flexible loan, such as one that offers a redraw facility, you may be charged a higher interest rate. It all depends on what kind of loan you want.

Can you apply for an Australian car loan if you're not from Australia?

Much like all financial products, car loan providers have certain lending criteria that applicants must meet in order to be approved for the loan. One of these is the applicant's residency status.

Australian car loans are typically available to Australian citizens, permanent residents, and in some cases, temporary residents such as visa holders. Eligibility is ultimately up to the individual lender, however temporary residents tend to be charged a higher interest rate due to the increased risk to the lender.

If you are a temporary resident with a strong application otherwise, you may have a better chance of securing a loan.

Are Australian car loans different from the rest of the world?

Australian car loans work much the same as car loans offered in other countries around the world. If you have taken out a car loan or other kind of personal finance product in another country, but not in Australia, one thing to think about is your credit score.

Whether you have a good credit score or a bad credit score in another country, Australian lenders will not be able to access this information in the application process. Which means, if this is your first application for credit in Australia, you don't yet have a credit history.

Applicants with no credit history may find it more difficult to secure a competitive loan, as lenders won't be able to assess your borrowing behaviours and the level of risk you pose.

However, an applicant who meets all of the lender's eligibility criteria and has a strong application overall will have a better chance of being approved for their preferred loan.

What Australian car loan can you afford? 

The car loan you can afford will depend on your personal circumstances. Once you have figured out your required loan amount, you might like to consider using RateCity's repayment calculator to get an estimate of your monthly repayments and determine whether they will fit comfortably within your budget.

How to apply for an Australian car loan

  1. Compare your options by using a car loan comparison table like the one on this page. You can use the filters to narrow down your search and then create a shortlist of your preferred products.
  2. Do a quick credit history health check to understand what interest rates you may be eligible for. Typically, only borrowers with excellent credit scores will be able to secure the most competitive products. If your credit rating could use a boost and time is on your side, consider working towards improving it before you apply for a loan.
  3. Use a car loan calculator to confirm you can afford the potential loan repayments.
  4. Check the eligibility criteria of your preferred loan to ensure you meet the requirements. This may also be a good time to check the fine print such as the product disclosure statement and any disclaimers.
  5. Organise your paperwork. You will need to show the lender personal identification (such as your license or passport), proof of income, copies of bank statements, copies of bills, and information on any debts you may have (such as credit cards). You’ll also need to provide information about the car you want to buy.
  6. Submit your loan application and await a response from the lender to see if you've been approved for your new car loan.

How long does it take to be approved for a car loan? 

Most lenders will offer an online application, which could take just 15 minutes to complete. This makes the process a lot quicker than going to a bank branch to apply for a car loan.  

While the application process may be speedy, your approval may not be. Lenders may take a few hours or days to respond. Approval from the big four banks (Commonwealth Bank, Westpac, ANZ and NAB) can take between one and three business days.

Can I get pre-approval for a car loan?

Much like with a home loan, it is possible to get pre-approval for a car loan. Typically, you’ll choose the car you want from a dealer or used car lot and then apply for car loan finance.  

With car loan pre-approval you’ll be able to walk into a dealership with the confidence of knowing exactly how much you can borrow. This can be a helpful strategy when negotiating the car price.

However, as with a home loan, your pre-approval will only be for a set time frame.  

The pre-approval application process is the same as applying for a car loan. However, as pre-approval is not always offered, you may need to ask specifically for pre-approval on a loan.

Frequently asked questions

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.

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 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.

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 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 an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

Can I get a discounted student car loan?

Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.

Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.

As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

How to apply for pre-approval of a car loan from RACV?

If you’re planning to apply for a car loan with RACV, the best way to start is by having a clear picture of your requirements. By getting pre-approval on your car loan, you’ll be able to go shopping for your new car with a definite budget that will help you narrow your search. Once you’ve decided to buy a car with the help of a loan, you may have even identified the type of car you would like to purchase, you can seek pre-approval on a car loan from RACV. 

You can apply for pre-approval by filling out a form online and uploading the relevant documentation regarding your identification, income, debt and credit history. Once you submit your application, RACV will review and verify the documents. If you meet their eligibility criteria, you will get pre-approval for the amount they are willing to lend to you. With this pre-approval, you can go car shopping with the confidence of knowing what you can afford.

How to get pre-approval for your ANZ car loan?

Getting pre-approval on your car loan can give you a good idea of how much you may be allowed to borrow. This will help you set your limits while selecting your car. You can apply for pre-approval for an ANZ car loan by filling out a simple online application form, where you’ll have to submit relevant identity, employment and income documentation. 

ANZ will then conduct a credit check based on your application and documentation. It’s important to note that this could have an impact on your credit history. Based on your credit and income documentation analysis, ANZ will provide an amount they are willing to give you as a loan. After this, you can find the right car that matches the proposed loan amount and send it through your final loan application. 

It’s important to remember that pre-approval gives you an indication of how much you can borrow from ANZ to purchase your car, but it doesn’t guarantee the final approval. 

Can I get a car loan with poor credit?

Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

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.

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 to get pre-approved for a credit union car loan?

Getting pre-approval for a credit union car loan can make the process and paperwork required to buy a car more streamlined and less stressful. You can apply for pre-approval for a credit union car loan, online or contact your credit union. You’ll be asked to provide relevant documentation regarding your income. After you submit your application, your credit union will review and evaluate it along with the documents you submitted. If you meet the eligibility criteria, your loan will be pre-approved for a specific amount.

With pre-approval for a credit union car loan in hand, you can negotiate your new car’s price with peace of mind you have the funds.

I’ve been denied a car loan before; can I still get car finance?

Even if you’ve been denied a car loan before, you might still be able to get car finance. The key is to make the right application to the right lender.

The ‘right’ application is one that makes you look like an acceptable risk, which might include things like improving your credit score, increasing your savings rate and accumulating a bigger deposit.

The ‘right’ lender is one that deals with borrowers like you. For example, while some car loan lenders only deal with good credit borrowers, there are others that specialise in bad credit or poor credit borrowers.

Can I get a car loan with bad credit?

Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments.