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If you're in the market for a new car, there's a good chance you've already started weighing up your financing options. And while you may feel overwhelmed with the number of car loans available in Australia, understanding how to search for the right product will give you a better chance of finding the one that best suits your needs.
A car loan is a personal loan with a specific purpose - but Australian car loan products are far from being one size fits all. Before you get started on your car loan search, it can be helpful to have a good idea of the type of car you want to buy, the loan amount you want to borrow, and the monthly repayment costs you can comfortably afford.
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How do I search for a car loan?
Whether you're looking to upgrade your car to a newer model, need to upsize to fit your growing family, or you're finally going to treat yourself to the car of your dreams, no two borrowers' needs will be exactly the same. That's why it's so important to know how to find the right car loan for your unique circumstances.
RateCity's interactive car loan rate table allows you to narrow down your search results according to the features that are most important to you.
Use the filters to search for specific lenders, select a security type and/or rate type, and apply any other filters that may be relevant to you. Next, input your preferred borrow amount, ideal loan term and whether you want to buy a new car or a used car.
You can also sort the results by advertised rate or comparison rate, in order to find the most competitive options that suit your needs.
Once you have made a shortlist of your preferred loan products, be sure to compare all of the features, fees and other relevant factors before making a decision. Also consider reading the product disclosure statement before submitting a loan application.
Why is it important to compare car loan options?
Comparing car loan options can give you a better chance of choosing the right car loan for you. Without shopping around, there's a good chance you're limiting your options which could mean missing out on certain car loan features that could benefit you.
It might seem like an easy choice to take on the car finance that's offered to you at the car dealership, but doing so without making a comprehensive comparison of other loans on the market could potentially mean you're short changing yourself.
Even if the interest rate is competitive - which can generally be a positive start - there's still a number of other factors to consider when making your comparison.
What should I consider when searching for a car loan?
The first step for many is to compare interest rates. There are two parts to a car loan interest rate: the advertised rate and the comparison rate. The advertised rate is just the interest rate you pay on the loan, while the comparison rate combines the advertised rate and the main fees, including any upfront and ongoing fees. Consider taking different advertised rates and different comparison rates into account when making car loan comparisons.
Fees and charges
Car loan fees and charges can have a big impact on the overall cost of the loan, meaning the loan with the lower interest rate won't necessarily always be the more cost-effective option. Fees typically include the following:
- Application fees, also known as upfront fees
- Establishment fees
- Account-keeping fees, such as monthly fees or ongoing fees
- Early repayment fees
- Extra repayment fees
- Early exit fees
- Redraw fees
Features offered by different car loan products can vary, and some lenders may charge borrowers extra fees to access certain features. Consider comparing all available features to ensure your preferred product is right for you. These could include:
- Fixed or variable: You will need choose between a fixed interest rate or variable rate for your new car loan. There can be benefits and disadvantages to both options, so be sure to weigh these up before making your decision.
- Extra repayments: Some products will allow for extra repayments in addition to your regular fortnightly or monthly repayments. This feature can be helpful if you want to pay your loan off faster and potentially minimise interest costs. However, there can be a limit on extra repayments.
- Redraw facility: If you are interested in having the option to make extra repayments, you may also be interested in finding a loan with a redraw facility. A redraw facility enables you to redraw any additional payments you have made on your loan, which can come in handy if you need to access some extra cash down the track. Be aware that there can also be a limit to how much you can redraw, as well as a fee charged each time you redraw.
The loan term is the length of time you have to pay off your loan. Car loan terms most commonly range between one and five years, but some lenders may offer more flexibility. Ultimately, it's important to choose a car loan that you can repay comfortably, over a period of time that suits your needs. Consider using RateCity's Car Loan Calculator to get an estimate of how much your car loan repayments might cost on different terms.
You will also need to choose between a secured car loan and an unsecured car loan. Lenders will typically charge higher interest rates for unsecured loans because they regard them as riskier than secured car loans.
How can I find the best car loan on RateCity?
Finding the best car loan for your needs doesn't have to take a huge amount of time and energy. RateCity's Real Time Ratings can minimise the legwork that might normally be required to find the top financial products.
Real Time Ratings is a rating system that ranks car loan products based on your individual lending requirements. It gives each product a score out of five stars, formulated on loan costs and flexibility.
To keep things simple when it comes to finding the right car loan for you, Real Time Ratings provides up-to-date results that are calculated as you use the site.
For information specific to your personal financial situation, consider reaching out to a financial advisor.
Georgia Brown is a journalist and content writer for RateCity. Before venturing into the world of personal finance, she worked as a reporter for realestate.com.au and Smart Property Investment. She now works truly amongst personal finance, while also writing about other areas, such as sustainable finance and super.
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Frequently asked questions
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 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.
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 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.
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 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.
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.
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 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 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.
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.
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.
Can you get a car loan as a single mum?
Getting a car loan can be tricky if you’re a single mum, but it’s not impossible. Juggling your finances can be difficult, particularly if you are reliant on a sole income or on Centrelink payments (or a combination of the two), and having a car is a necessity rather than a luxury for many who have to look after children. Luckily there are specialist providers and services that can help you get the loan you’re after, even if you’re in a tough spot financially.
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 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.
What is salary packaging?
Salary packaging is an arrangement you can make with your employer that can allow you to buy a car from your pre-tax salary. The advantage of salary packaging is that it will redue your taxable income.