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How do you compare car loans?

When it comes to comparing car loans, it’s important to make sure you’re comparing apples with apples. For example, secured car loans must be compared with other secured car loans, and unsecured loans with other unsecured loans.

If you factor the following details into your car loan comparison, you’ll likely be better equipped to make a fair comparison and work out which car loan best suits your needs.

  1. Interest rates: Be sure to compare both advertised rates and comparison rates, plus fixed rates and variable rates.
  2. Loan type: It’s important to determine between secured and unsecured loan types.
  3. Fees: Consider one-off fees as well as ongoing fees.
  4. Features: You may be interested in making extra repayments or having a redraw facility.
  5. Loan term: Typically up to five years.
  6. The lender: Determine what kind of lender you want to get your loan through, and what facilities and services they might offer you.

How to compare car loan interest rates

The most obvious place to start comparing car loans is with the interest rate. This is the extra percentage you'll have to pay on top of the amount you borrowed, which is known as the principal.

Generally, the lower the interest rate, the cheaper the deal. Just remember the fees and charges when calculating the loan’s total cost.

Comparison rates

When researching interest rates, you should also look at different comparison rates. The comparison rate combines a loan's advertised interest rate with its standard fees and charges, giving you a more accurate idea of its overall cost.

Watch out for any extra fees and charges that aren’t included in the comparison rate as they can drive up the total cost of the loan.

Fees and charges

Some of the types of fees and charges that may apply include:

  • Application fee
  • Establishment fee
  • Early repayment fees
  • Monthly fees or account keeping fees
  • Exit fees payable at the end of the loan term
  • Other ongoing fees

How to compare variable and fixed car loans

When you're comparing different types of car loans, you will need to choose between a fixed rate or variable rate car loan.

Fixed rate car loans

Choosing a fixed rate car loan means agreeing in advance to pay a set amount of interest with each monthly repayment. Because your interest rate is locked in from the start of the loan, your monthly repayments will always be the same, which can help make budgeting much simpler.

The downside of fixing your car loan interest rate is that if your lender cuts rates, you won't get to enjoy the savings. Plus, if you're locked into a fixed car loan plan, you may lose some repayment flexibility.

Variable rate car loans

If you choose a variable rate car loan, your lender could change the interest rate at any time. If there's a rate cut, you'll pay less interest and your repayments will go down. But if there's a rate rise, you'll pay more interest and your repayments will go up.

This can make it trickier to budget for a variable rate car loan than for a fixed rate car loan, though many variable rate car loans offer flexible repayment options and other features.

How to compare secured and unsecured car loans

Many car loans are secured, which means the money you borrow is guaranteed against the value of an asset – usually the car you're purchasing. If you don't make your repayments, the lender may seize your car to recover its losses.

This financial security means lenders often offer lower interest rates for secured loans. However, some lenders only offer these loans for certain car models, or for cars under a certain age, to ensure the car's value is sufficient to secure the loan. 

Unsecured loans don't require security, so you can use them to buy a greater variety of vehicles. However, because unsecured loans are riskier to lenders, they often have higher interest rates than secured car loans do.

Other types of car loans

There are a number of other types of car loans on the market, each of which meet specific financing requirements. These include:

  • Chattel Mortgage: a specialist car finance option for business use
  • Operating Lease: a longer-term car rental arrangement, which involves a company leasing a car for an extended period of time
  • Commercial Hire Purchase: involves a finance company buying a car on your behalf and letting you use it in return for regular rental payments
  • Car Lease: you rent the car for a pre-determined period of time and at the end of the lease, you either return it or buy it
  • Novated Lease: similar to a car lease, but with a more complicated ownership structure, as you acquire the car from a second party (usually an employer) which in turn leases it from a third party (a finance company)

How much should I borrow with a car loan?

Before you start to compare car loans, it's a good idea to think about how much money you'd like to borrow, how much time you’ll need to pay it back, and how much you can afford to repay each month.

It's tempting to buy the best car possible and borrow the largest sum you can afford. But it might be more sensible to choose a more modest vehicle so your car loan repayments are easier to manage. Some lenders offer different loans for new and used cars, so compare your options before choosing a vehicle.

Should I borrow 100% of the purchase cost?

If your loan amount is less than 100% of the purchase cost, you might be offered a lower interest rate.

This is similar to how you can save a bit of money when buying a home. If you have a house deposit worth 20% of the price, you'll avoid having to pay for lender’s mortgage insurance. In a similar way, providing more money upfront for a new car might help you get a lower interest rate on a car loan.

When it comes to working out the length of your car loan term, remember that the shorter your loan term, the higher your fortnightly or monthly repayments will be. But if you go for a longer loan term with smaller repayments, you'll likely pay back more in interest costs over the life of the loan. You can use RateCity's Car Loan Calculator to compare potential repayment costs of different loan terms.

New vs used cars

New cars tend to have greater resale potential than used cars. This means lenders often regard loans for used cars as higher risk, and so they charge higher interest rates.

However, because used cars tend to be cheaper than new cars, you shouldn't need to borrow as much money to start with.

What to look for when comparing car loans

  • Early exit/extra repayment penalties: Paying extra on a car loan can help you get ahead on your repayments, or even pay your car off early, which can reduce the interest you’re charged. However, your lender may charge fees for these features.
  • Redraw facility: If you make extra car loan repayments, a redraw facility will allow you to take this money back out if you need it. Just check the lender's terms and conditions.
  • Personal Property Securities Register (PPSR) check: If you're buying a used car, it's important to check if it has money owing on it from a previous owner, also known as a financial encumbrance. You can organise a PPSR check (formerly known as a REVS check) before getting your car loan. Your lender may be able to handle this for you, though they may charge a fee.
  • Deposit: Unlike a home loan, you don't always need a deposit for a car loan. If your credit history is good but you don’t have much in savings, you may still qualify for a low-deposit or no-deposit car loan. As these loans are riskier to lenders, they tend to have higher interest rates.
  • Terms and conditions: As with any financial product, it's important to examine the terms and conditions of every car loan you consider to understand all the fees and costs involved, as well as the features.

How to compare car loans in Australia

RateCity compares loans from a range of different lenders all in one place, so you can look at them side by side. This can save time and quickly deliver the information you need to make a more informed decision.

Once you've looked at the available rates, and have compared other features, costs and benefits, you can narrow down your car loan shortlist before submitting a loan application.

Compare the options, find the best car loan for you, and get on the road!

For information specific to your personal financial situation, consider reaching out to a financial advisor.

Frequently asked questions

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.

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.

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 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.

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 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.

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 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.

Where can I find lenders who offer no credit check car loans?

There are companies that claim to offer no credit check car loans. However, you may find that companies that offer no credit check car loans have high fees and high interest rates.

You might be better off finding a specialist lender who will look at your credit history and income, who will decide whether or not you are able to responsibility pay back the loan. Alternatively, you could contact a car finance broker.

Where can I find lenders who offer no credit check car loans?

You can find lenders who offer no credit check car loans through comparison sites like RateCity or by doing an online search.

One thing to bear in mind is that lenders who offer no credit check car loans are likely to charge higher interest rates and higher fees than on car loans that include a credit check. Also, lenders who no credit check car loans might expect you to pay a higher deposit. You might also be expected to provide security.

Lenders regard no credit check car loans as riskier than other car loans, which is why it’s a niche product that often features special conditions.

Can I get a no credit check car loan?

You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.

Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.

That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.

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 much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

Can I buy a car as a student?

Buying a car is a huge financial decision, and shy of marriage and purchasing a house (or perhaps around the world travels), it may be the biggest financial decision you make. But if you’re looking at your empty pockets, don’t despair! Your dream of owning your own car could become a reality, if you look for and compare the right car loans for your circumstances.

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.

Who provides bad credit car loans?

Lenders that provide bad credit car loans tend to be smaller challenger lenders rather than the bigger banks.

Bad credit car loans are a niche product. The bigger banks tend to focus on mainstream car loan finance for borrowers with better credit histories. That’s why smaller lenders tend to be the ones that provide bad credit car loans.

Bad credit car loans can have high interest rates and fees, so it’s important to compare options before submitting an application.

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.