What to consider when choosing a car loan

Is the open road calling your name? Or has a new addition to your family got you looking at family cars instead of two-seater sports models? Whatever car type, new or used, big or small, a car loan is the first step in helping you to secure your dream drive.

You may have tainted car loans with the same brush as used car salesmen but rest assured, our Car Loans Guide will assist you with any questions and arm you with the knowledge to track down the best deal for you. Find out the difference between the types of loans available and how to prepare yourself when applying.

1. Loan Amount

Set a budget and stick to it. We know it’s easier said than done when you show up to a car yard looking for a Kia Rio and find yourself sitting in an Audi. However, when applying for a car loan it is important to know your loan price so that you don’t sell yourself short by under-borrowing or adding extra financial pressure on yourself by over-borrowing.

The amount you should borrow will depend on the price of the car that you wish to purchase and how much of your own money you will use towards the car. Most importantly, it will depend on what you can afford to make in repayments. Put those Audi keys down…

Work out a monthly budget to see the amount of money you will be able to afford to put towards paying off your car loan. We can give you a hand with these calculations. Use our car loan repayment calculator which will show you approximately what your loan repayments will be.

Also keep in mind that some lenders also have a minimum and maximum amount that you can borrow so be sure to keep within their limitations.

2. Loan Type

We aren’t limited for choice when it comes to choosing a car and the same applies for car loans. Unfortunately this means there is no one-size-fits-all car loan, so you will have to study your options to find the right loan type for you.

Get familiar with the different car loan types so you can spot the right one:


A variable car loan’s interest rates are dependent on the lender, which means they can fluctuate and affect your repayment amount. So if your financial institution increases the interest rate your repayments will increase and if they decrease so will your repayments. This type of loan is harder to budget for as your repayments may vary from month to month however, the interest rates are generally lower than fixed rates.


As you might have guessed, a fixed car loan is a type of loan where the interest rate is fixed for the term of the loan, which means your repayments will always stay the same. Because of this it is easier to budget for a fixed loan compared to a variable loan; however, fixed rates tend to be higher than variable rates.


With a secured car loan, generally the car you wish to purchase is used as an asset for security against the loan. Because this loan is considered a lower risk for lenders, due to the fact that if you default on your repayments they can repossess your vehicle and sell it to pay off your loan, it generally offers better interest rates.


Unsecured car loans do not require the car as security against the loan. Instead you need to prove that you can meet the repayments by showing a history of savings or if you have previously had a loan or a credit card that you met the repayments. Some borrowers may not have the option of choosing between secured and unsecured car loans but with so many to choose from on RateCity you are bound to find one that is great value and suits your requirements.

3. Car Type

Are you looking for a new car or a used car? Which one you choose and the age of the car will determine what type car loan you may require.

New car loan

So you have your eye on a sparkling new car? You better start looking at new car loans then. A new car loan is a type of personal loan available to fund the purchase of your new car. With this type of loan, there are usually conditions about the age of the car that you wish to purchase. These will differ between financial institutions. Some may offer new car loans to brand new cars only, while some may consider a new car no more than two years-old or with a certain amount of kilometres on the clock.

The great news for new car buyers is lower interest rates. The interest rates for new car loans are usually a bit lower than a used car loan as this type of loan is seen as less risk to the lender because new cars are generally worth more than older models.

Used car loan

You’ve decided to purchase a pre-loved vehicle? A used car loan will allow you to borrow money in order to purchase a used car only. Depending on the financial institution, there may be restrictions on the age of the car in order to be eligible. For example some may offer this type of loan to cars that are between two to five years-old. Always check with your lender for terms and conditions.

The other major difference between a used car loan and a new car loan is that interest rates may be a little higher for used car loans. But like a new car loan, there are also a range of secured and unsecured used car loans available to choose from.

4. Preferred Features

It’s the fine print that really requires your attention. When narrowing down your car loan options make sure you look into the loan features. There are a range of features attached to car loans, which are all specific to the type of loan and the lender.

Some of the preferred features are:

No early exit penalty

If you come into extra money and want to pay off your loan early, before the end of the term, you want to know that you can do so without being penalised. This will differ between lenders and the loan type you apply for so make sure you enquire about this feature.

Extra repayments

Can you make extra payments off your car loan? By doing so this will allow you to pay off the loan sooner and save money to boot. To find out about this feature ask your prospective lender if your car loan allows extra repayments, if you will be charged for doing so and if there is a limit on how many repayments you can make within a certain time frame. These are the finer details you should find out before applying for a loan.

5. Checklist

The dreaded paperwork. It’s a tedious part of life but a necessary process we can’t avoid. We’ve tried to make it easier for you by putting together a checklist of some of the documentation that you may need to support your car loan application.


It’s time to prove yourself. Usually when applying for a loan you need to provide identification in accordance with the ID check system. Have your driver’s license or passport ready as well as your birth certificate and Medicare card, or two additional cards with your name and photo on them, to prove you are who you say you are.

Contact details

It sounds silly that you wouldn’t know your own number but you don’t call yourself, do you? Make sure you have all of your contact details on you, such as address and phone numbers, so that you don’t slow down the application process.

** Copies of bank statements **

Most lenders will ask for copies of your bank statements from the past few months to see that you have a savings history. If you no longer receive paper statements you can still log into your internet banking and print them out or even email them to your lender.

Credit history records

Be prepared for your credit history to be studied. While it can feel a little intrusive, a credit check is a comprehensive way for lenders to determine if you are going to be able to make the loan repayments. If you have any credit cards or other loans they may ask to see copies of the past few statements for evidence that you can meet the repayments and have not defaulted. If you’ve never held a loan or a credit card before, don’t worry, proof of income and any bills such as phone or electricity and even rental payment receipts can all count towards your credit history.

Proof of income

Unfortunately your word doesn’t carry the same weight it would have in the old days. In order to prove you earn the amount that you state on your application you will need to provide pay slips from the past few months. If you don’t have copies of these you may be able to use your most recent tax return or group certificates, however check with your lender to see if they will accept these.

Car details

If you are using the car to secure against the loan you will need to provide details of the car such as registration and engine number. If you buy it from a dealer you may need to provide details as your lender may need to make a cheque directly to them. You may also need a copy of the receipt when you purchase it to prove the cost.

Start comparing a great range of Low Interest Car Loans now

This is an information service. By browsing on the website and/or using our search tools, you are asking RateCity to provide you with information about products from multiple financial institutions. We will try to show you a range of products in response to your request for information. The search results do not include all providers and may not compare all features relevant to you, for further details refer to our FSCG. The rating shown is only one factor to take into account when considering these products. We are not a credit provider, and in giving you product information we are not making any suggestion or recommendation to you about a particular credit product. If you decide to apply for a product, you will deal directly with a financial institution, and not with RateCity. Rates and product information should be confirmed with the relevant financial institution, and you should review the PDS before you decide to purchase. See our terms of use for further details. This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.