Whether it's to get to work, take the kids to school or take to the open road, owning a car is essential for many Australians. If you want to buy your first car or upgrade to a new one, a car loan may help turn your dreams into reality.
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Lenders getting increasingly personal with their car loans
A growing number of car loan lenders are offering personalised interest rates.
How do Australian car loans work?
Australia's car loan market is very competitive, so there are lots of lenders and loan types to choose from. 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 you then pay back the lender the cost of the car, plus interest costs, over a set period of time, usually three to five years. The car loan will allow you to eventually own the car outright.
A car loan will include:
- Interest rate – e.g. 7.95 per centf
- Interest type – variable or fixed
- Loan size – e.g. $30,000
- Loan term – e.g. 5 years
- Loan type – secured or unsecured
- Loan repayments – weekly, fortnightly or monthly
- Loan fees – establishment, account-keeping, redraw, late payment and/or early repayment fees
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 rate that is variable or fixed. Features may include the option to make flexible repayments or introductory offers with low interest rates for a fixed period.
How do you find the best Australian car loan?
The best way to find the right car loan for you is to do your research. Decide what type of loan you want, the feature 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 personalised list to choose from.
Is the cheapest Australian car loan the best?
The cheapest loan (or one with the lowest advertised rate) 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.
ASIC’s MoneySmart provides a helpful table explanation:
|Interest Rate||Fees & Charges||Comparison Rate|
|Car Loan A||8%||0.5%||8.5%|
|Car Loan B||8.25%||0.1%||8.35%|
Note: table amended to reflect car loan rates.
Car loan B may have a higher advertised rate, but it will 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 also a flexible loan, such as having a redraw facility, you may be charged a higher interest rate. It all depends on what kind of loan you want.
What Australian car loan can you afford?
The car loan you can afford will depend on your personal circumstances. Use a car loan calculator to determine potential loan repayments and decide if you can afford them.
Your application may be rejected if the lender believes you can’t afford the loan. Use a calculator before you apply to minimise your risk of rejection, as this can negatively impact your credit history. Your credit history is checked during the application process. If you have a poor history, consider taking steps to improve it before you apply for a loan.
How to apply for an Australian car loan
After you’ve decided on your dream car and car loan, here’s how you can apply for it:
- Do a quick credit score health check to avoid any nasty surprises. You never know what could be in your credit history. Sometimes the debt defaults of family or others with a similar name to yours can accidentally be applied to your credit history.
- Use a car loan calculator to confirm you can afford the potential loan repayments. If you’re buying a car for your family, consider what percentage of your take home pay the repayments will be, and whether this is doable if you lose your job.
- 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.
How long does it take to be approved for a car loan?
Most lenders offer online application, which can take up to 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 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, may need to ask specifically for pre-approval on a loan.
Your credit history is a record of the dealings you’ve had with credit providers such as banks, credit card companies, mobile phone companies and internet companies. Your credit history records how successfully you’ve managed your repayments. It also records how many credit applications you’ve made and how many of those were rejected.
Credit providers refer to your credit history when deciding whether or not to extend you credit. Missing repayments is a bad sign; making too many applications or having applications rejected can also be a bad sign.
Credit infringements can remain on your credit history for five years – or seven years for serious infringements.
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.
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.
There’s no set number. That’s because borrowing capacity differs from person to person, as well as lender to lender.
Lenders don’t give out car loans unless they’re confident they’ll be repaid. Each person is different, so the amount of money one person can successfully borrow will differ from another person’s number. Also, each lender uses its own formulas to calculate borrowing capacity – so Mr & Mrs Smith might find that while Lender X will give them a car loan for $20,000, Lender Y will offer only $18,000.
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.
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.
A car loan calculator is an online tool that helps consumers understand how much they would have to repay under different scenarios. Consumers can create these different scenarios by entering different borrowing amounts, interest rates, loan terms and repayment schedules into the car loan calculator.