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What is a new car loan?

A new car loan is a type of personal loan that lets you finance a car that's under a certain age. New car loans are generally used to buy vehicles that are up to five years old, though some lenders limit the maximum age to three years.

When you take out a new car loan, the lender will provide the money you need to cover the purchase price as a lump sum. You'll then repay the loan amount, plus interest and fees, in regular instalments over a predetermined period (the loan term).

What are the benefits and risks of new car loans?

Weighing up the pros and cons of a new car loan can help you work out if it’s the right type of car finance for you.

New car loans are typically used to purchase brand-new vehicles, though you may also be able to buy a pre-owned car that’s under a maximum age cap, such as 2 or 3 years old. Newer cars may offer advanced safety features and technology, and less wear and tear may mean less risk of mechanical problems. This could potentially help you secure a lower interest rate compared to a used car loan.

On the other hand, new cars are often more expensive than used cars, and you may have to wait for the vehicle to be delivered if it's not in stock, which means living without a car for longer.

A higher purchase price could mean bigger repayments, a longer loan term, or both. To avoid any surprises, you could use a car loan repayment calculator to help you calculate your monthly repayments for various loan sizes and terms.


  • A new car will typically qualify for a secured car loan, which will likely have a more competitive interest rate than an unsecured car loan.
  • A new car loan could let you extend your budget so you can afford the car you want, when you need it.
  • It may be easier to secure finance for new cars, particularly brand-new cars, as they tend to pose less risk to lenders than used cars.


  • New cars are generally more expensive than used cars, which could mean higher repayments, a longer loan term, or both.
  • Buying a new car with finance means paying interest on the amount borrowed for the duration of the loan term.
  • If you neglect to carefully calculate how your car loan repayments will fit into your budget, you could risk getting into financial stress.

Who has the best new car loan rates in Australia?

No single car loan rate or provider can be the best choice for everyone. Comparing car loans can help you narrow down your options to only those that will best match your financial situation and personal needs.

Using comparison tools and Loan Repayment Calculators, you can filter the available car loan options based on your specific goals and budget, to help you make the best new car loan choices for you. 

When you apply for a car loan, the lender will conduct a credit check. Your credit score helps lenders assess the potential risk of lending you money, which may affect the best interest rate you’ll be offered. If your credit score has room to improve, it might be worth exploring ways to give it a boost before you apply.

Keep in mind that while you may need to borrow more money to buy a new car, loans for new cars may have lower interest rates than used car loans on average, meaning they may be competitive options.

Is interest paid on a new car loan tax deductible?

When you buy a vehicle for work or business use, you could potentially claim some of the expenses on your tax. This may include fuel and oil, repairs and servicing, lease payments, insurance premiums, registration, and depreciation.

You may also be able to claim the interest charges on your car loan as a tax deduction. If you use a chattel mortgage to buy your work vehicle, you may also be able to claim the GST in the vehicle purchase price on your tax. And there’s also the instant asset write-off to consider.

But remember, no matter what kind of car loan you decide to take on, you can only claim tax benefits if you use your car for work. If you’ll use your vehicle for private as well as business purposes, you may need to keep a logbook or diary to record details of the car’s work use. 

When it comes to buying a car while keeping your taxes in check, there are a bunch of options to consider. But tax rules can be a real maze, and they may differ year to year. That's why it's not a bad move to check with the ATO, discuss your options with a tax professional or chat with a financial advisor first. That way, you'll get the lowdown on how your car loan could play out in terms of your tax situation.

Is a new car loan the same as a used car loan?

New car loans and used car loans are similar in many respects. However, there are a few important differences between the two, including:

  • Vehicle age restrictions - New car loans typically allow you to buy cars aged up to three or five years old, depending on the lender. Meanwhile, used car loans may allow you to buy cars up to 10 years old (age cap depending on the lender).
  • Interest rates - Lenders typically consider new car loans to be less risky than used car loans, as it’s easier to calculate a new car’s value and they’re less likely to break down and be written off. This means new car loans often offer lower interest rates than used car loans.
  • Security - New car loans tend to be secured against the car itself, while used cars may need to meet certain age and condition criteria to be used as collateral. The main benefit of securing your car loan is that it will typically allow you to access lower interest rates.

Do I need a specific car loan for a hybrid or EV?

If the new car you're considering purchasing is an elextric, hybrid or fuel-efficient vehicle, you may qualify for a green car loan instead.

Green car loans have different vehicle eligibility criteria than new car loans. While a new car loan could be used to purchase almost any type of car that’s under the loan’s maximum age, green car loans can only be used to buy 'green' cars. The reason that buyers may want to consider a green car loan is that they typically come with lower interest rates. Lenders will try to incentivise customers to purchase environmentally-friendly vehicles by offering more competitive interest rates. 

A vehicle that has lower carbon dioxide emissions than other cars of a similar size could be considered a green car. This may include:

  • Low-emissions vehicles
  • Battery electric vehicles
  • Hybrid electric vehicles
  • Plug-in hybrid electric vehicles
  • Certain new cars with a high standard of fuel efficiency

Certain new cars may meet the eligibility criteria for both a new car loan and a green car loan, but there are also plenty of vehicles that may only meet the conditions of one or the other. Comparing green car loans and new car loans could help you to work out which option may suit your financial situation and personal goals.  

Ask the lender for information about how it determines a particular loan's purpose to be ‘green’ and how it contributes to environmental sustainability.

What to look for when comparing new car loans

Some of the most important options to compare when choosing a new car loan include:

Secured vs unsecured loan

New car loans are commonly secured by the value of the car itself. Alternatively, you could buy a new car with an unsecured personal loan, but the interest rate will likely be higher.

Interest rates

The loan's interest rate will determine how much you pay in interest charges. Fixed interest rates will stay the same throughout the life of the loan, while variable interest rates can fluctuate with the market.

The car loan interest rate you’re offered will depend on a range of factors, including your credit score.


You may be charged upfront and ongoing fees on top of your interest payments, such as: 

  • Loan application fees
  • Establishment fees
  • Monthly fees
  • Late payment fees
  • Early repayment fees
  • Exit fees

Comparison rates

Combining a car loan’s interest rate with any standard fees, the comparison rate can give you a better idea of its total cost.

Extra features

Some lenders offer additional car loan features that may appeal to you, such as the option to make extra repayments to pay off your car loan faster, and a redraw facility that lets you withdraw any of these additional repayments you've made if you need to.

Loan term

The loan term is the length of time you have to pay off your car loan. Car loans often have three to five year terms, but sometimes longer or shorter terms are available. The longer the loan term, the cheaper the repayments, but the more you'll likely pay in interest.

When searching for a new car loan, it’s important to remember that no single car loan or provider can be the best choice for everyone. Understanding the various factors that affect your car loan could help you make an informed choice.

One quick and simple way to get a better idea of the potential value that different car loans offer is to look at their Real Time Ratings™. These star ratings combine the cost (e.g. interest, fees etc.) and flexibility (e.g. approval/funding time, extra repayments, redraw and early exit penalties) of each car loan, and are updated regularly to ensure improved accuracy.

Remember to take your time to compare various options and choose a loan you’re comfortable with. A car loan calculator can help you determine your monthly repayments for different loan sizes and interest rates. This may help you decide on a reasonable budget for your new car, so you can enjoy driving without financial stress.

Car loan repayment calculator

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Calculate what your repayments could be on your car loan.


How do you finance a new car?

There are a wide variety of car finance options available. Different options may better suit different borrowers, depending on the type of vehicle you’re buying, and whether it’s for work or personal use. 

These include:

  • Secured Car Loans: Car finance where you provide collateral, typically the car itself.
  • Unsecured Car Loans: Car finance where you don’t provide collateral. May be more flexible, but interest rates may be higher. 
  • Chattel Mortgage: A specialist car finance option for business use.
  • Operating Lease: More like a long-term car rental arrangement, involving a company leasing a car for an extended period.
  • Commercial Hire Purchase: Closer to a rent-to-buy arrangement, involving a finance company buying a car on your behalf and letting you use it in return for regular rental payments. After a certain number of payments, you may own the car.
  • Car Lease: Like a commercial hire purchase, but with more options. You rent the vehicle for a set period, and at the end of the lease you have the option to either return the car or buy it for an agreed amount.
  • Novated Lease: Like a car lease, but with a more complex ownership structure, as you acquire the car from one party (usually an employer), which leases it from another party (a finance company).

You may also be able to add a Balloon Payment to some of these car finance options. This is where you set aside a percentage of the loan (often around 25%, but could range from 15% to 50%) as the ‘balloon’, then make smaller car loan repayments on the remainder of the loan in the beginning. At the end of the loan term, you’ll have the balloon to  pay a lump sum, though you may also have the option to refinance the balloon, which could let you upgrade your vehicle.   

Can you refinance a new car loan?

Refinancing a car loan simply means switching from one car loan to another, usually with a different lender. Refinancing could let you enjoy cheaper interest rates, lower fees, or flexible payment options to help you pay off your car loan sooner and save some money.

If you have a car loan with a balloon payment, you may choose to refinance the balloon amount at the end of the loan term rather than paying it as a lump sum. This lets you pay it off in smaller instalments over time, though it may cost you more in total interest. In some cases, you may also have the option to trade in and upgrade your car when you refinance.  

Refinancing a new car loan is a fairly simple process, which is similar to applying for a new car loan: 

  • A borrower with an existing car loan applies for a new car loan that they’ve selected;
  • Once approved, they use that money to pay off the initial car loan with their current lender;
  • Then they start making repayments on the new loan.

Keep in mind that if you’ve been driving your new car for some time, it may no longer qualify for a new car loan when you refinance – you may need to switch to a used car loan instead, which may not always offer better rates or more flexible features.

If you're considering refinancing your car loan, do your research, compare your options, and consider any early exit fees or establishment fees you may incur by switching from one lender to another. 

Consider using RateCity's switch and save car loan calculator to get an idea of how much the monthly repayments might cost on a new loan with a different interest rate. You might also like to visit our credit score hub to check your credit history and ensure it's in good shape before applying for a new loan.

Fact Checked

This article was reviewed by Head of SEO Leigh Stark before it was published as part of RateCity's Fact Check process.

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, target market determination fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.