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Learn more about car loans

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 repaymentsComparison 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. 

Frequently asked questions

What is a refinance?

A refinance is when you swap one car loan with another. For example, you might take out a car loan with Lender X because it is the best on the market at the time – but two years later, you might switch to Lender Y because you discover that it now has the best loan. Conditions and fees often apply when you refinance.

What is residual value?

The residual value of a car is how much it will be worth at the end of a lease period. Finance companies need to calculate a car’s residual value before they can know how much to charge during the lease period. For example, if a financier calculates that a $30,000 car will have a residual value of $16,000 at the end of a five-year lease, the financier will know that it must charge $14,000 to break even on the lease – and more to make a profit.

What is a redraw facility?

A redraw facility allows you to re-borrow any funds you may have repaid ahead of schedule – although conditions and fees often apply. Not all car loans come with a redraw facility.

What is a chattel mortgage?

A chattel mortgage is a mortgage on a movable item. In the case of a car loan, the chattel is the vehicle. The lender maintains a mortgage over the chattel/vehicle until the loan is fully repaid.

What is the principal?

The principal is the value of the loan that is still outstanding. So if a borrower takes out a $20,000 loan, the principal is $20,000. If the borrower repays $5,000 in the first year, the principal is now $15,000.

What is resale value?

The resale value is the price you could realistically charge if you were to sell your car. Almost every car loses value each year, although at different rates. As a guide, cars depreciate on average by 14 per cent per year in the first three years and then eight per cent per year after that.

What is proof of residence?

Before giving you a car loan, lenders will ask for proof of residence – documentary evidence that you live where you claim you live. Lenders will typically want some combination of utility bills, bank statements, mortgage documents or driver’s licence. The reason lenders want proof of residence is to verify your identity and credit history.

What is an interest rate?

The interest rate is the price you have to pay for borrowing money. The interest rate is expressed as an annual percentage of however much of the loan remains to be paid. For example, if you took out a $10,000 car loan with an interest rate of 8.75 per cent, you would be charged 8.75 per cent of $10,000, or $875 of interest per year. But if you then reduced the outstanding loan to $9,000, your annual interest bill would be 8.75 per cent of $9,000, or $787.50.

What is an LVR?

The LVR, or loan-to-value ratio, 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 an LVR of 75 per cent. LVRs 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 LVR would now be 67 per cent.

What is a finance broker?

Finance brokers help borrowers organise car loans with lenders – that is, they act as middlemen between borrowers and lenders. While lenders will only recommend their own products, finance brokers recommend products from a range of lenders. Finance brokers need to be accredited with a lender to do business with that lender; a typical broker will be accredited with between 10 and 30 lenders. Finance brokers generally don’t charge consumers; instead, they receive commission payments from lenders.

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.

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 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.