Car Loan Brokers
Find out how car loan brokers can help you on your car loan application journey.
What is a car loan broker?
You might have heard of a mortgage broker, but not many people know that you can also use a broker for car loans.
A car loan broker is a professional intermediary whose job is to provide borrowers with information about lenders and car loans, to help the borrower choose an option that suits them.
As many often confuse car loan lenders with brokers, it’s worth noting that brokers don’t directly provide credit, but can help you on your car loan application journey.
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How can a car loan broker help me?
The market for any kind of financial product is complex for the average consumer. To properly compare car loans, you should be looking at each loan’s:
- Interest rate,
- Terms and conditions,
- Upfront and ongoing fees
- Loan term, and
- Eligibility criteria.
Lenders may regularly change the details of their car loan deals. If you don’t have time to educate yourself on all the vehicle loan options out there, using a car loan broker may save you significant time and effort.
Car loan brokers are professionals who work in this space day in, day out, and deal with vehicle loan applications every day. The typical customer isn’t going to be as well-informed in the vehicle finance industry as a professional car loan broker, especially if you’re applying for a loan for the first time. Their knowledge and experience could help with your comparison and application process.
A car loan broker can also take care of some of the more difficult aspects of the loan application for you, including negotiating with lenders. A professional broker is likely to have the industry knowledge and skills to deal with multiple lenders effectively.
Another benefit of using a car loan broker is they can provide advice to help with your loan application if you’re in a tricky financial situation. For example, if you’re self-employed, don’t have an excellent credit score or if you want to bring a guarantor onboard, it may be difficult to secure approval on your own. You can expect an experienced car loan broker to have dealt with various situations before, so they may have relationships with the lenders that are more likely to approve loans to borrowers in your situation.
Can a broker get me a better deal on a car loan?
While it’s not guaranteed that a broker will secure you the best car loan, chances are you may bag a better deal.
Aside from the fact that car loan brokers have established relationships with a range of lenders, many car loan brokers have access to lenders’ wholesale interest rates that generally aren’t offered directly to borrowers. Wholesale rates are usually lower than the retail rates you’d potentially be offered if you approached a bank.
A car loan broker may also help secure you a better deal as a lender only understands the policies and rates of its own car loan options. A broker would typically understand a larger cross-section of the vehicle finance market, which can help you compare your options and identify one that’s right for you.
That’s not to say you don’t need to be across the car loan options that a broker is putting in front of you. While they can’t recommend a car loan product that’s unsuitable for you or could put you in financial hardship, you still need to make the call on which car loan you want to go with. This means you need to understand the fees, features and interest rates of any prospective car loan you’re comparing. It may even be worth considering weighing up car loan options other than the ones recommended by the broker for a more comprehensive comparison.
- Often have access to wholesale interest rates.
- Able to quickly compare multiple banks and non-bank car loan lenders.
- Can be more efficient than comparing lenders and car loans by yourself.
- You can usually just deal with one broker throughout the entire application journey.
- Can be more convenient to deal directly with your existing bank.
- Car loan brokers do not have access to every single lender and car loan on the market.
- May give priority to the lenders they have pre-existing relationships with or offer the highest commission.
- May sometimes charge a broker service fee or commission or both.
Where can I find a car loan broker?
Like mortgage brokers, car loan brokers can be large groups or smaller family-run businesses. These days, most car loan brokers can be found and accessed online. Chances are you may even be able to complete forms and paperwork digitally. You may also find a car loan broker on comparison websites like RateCity, where you’d be able to compare multiple car loan brokers, as well as non-broker options.
Previously a financial writer for RateCity, Alison Cheung specialised in housing and real estate. Since 2015, she has written about commercial and residential property for Domain Group and NewsCorp in print and online, and has been published in both Domain and RealEstate.com.au. Alison is passionate about property investment and innovations in the real estate industry, and firmly believes in the most basic yet vital financial advice ever given: saving for a rainy day.
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Frequently asked questions
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.
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 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.
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 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.
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 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.
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.
What is collateral?
Collateral, or security, is an asset you agree to surrender to a lender if you fail to repay a loan. Generally, the collateral for a car loan is the car itself. So 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 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.
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.
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.
Who can be a guarantor on a car loan?
While a guarantor for a car loan is often a parent or relative, to be accepted as a guarantor, that third party must be someone with very good or excellent credit. They may have to put an asset of theirs against the loan as collateral, such as their car or home equity.
It’s important for both parties to really consider the risks involved before signing the dotted line of a guarantor car loan, including:
- What is your financial situation like?
- How secure is your current income?
- Are you likely to default on the loan?
- How much will the guarantor be required to repay if you default?
- How will this repayment impact the guarantor’s ability to service their existing financial commitments?
- Will your relationship be affected if the situation sours?
Ensuring you can answer these questions will help you and your potential guarantor decide whether a guarantor car loan is right for you.
What is proof of income?
Before giving you a car loan, lenders will ask for proof of income – documentary evidence that you earn as much as you claim you earn. Lenders will typically want some combination of tax returns, pay slips and bank statements. The reason lenders want proof of income is because they want to be sure you have the means to repay the car loan.
What is a dealership?
A dealership is a car yard or a place where cars are sold.