Compare car finance in Australia
What is car finance?
Car financing involves borrowing money from a lender in order to purchase the vehicle of your choice. Once the lender purchases the car for you, you pay it off at a more comfortable pace. Here are a few features of car finance you need to know:
- Loan amounts. Typically, you can borrow any amount between $5,000 and $100,000.
- Loan terms. Loan terms usually range from 12 months up to 10 years.
- Interest rates. Rates depend on whether the car loan is secured or unsecured. Secured car loans have lower interest rates.
- Fees and charges. Car loan fees usually include application, monthly service, early repayment, and late repayment fees.
How does car finance work in Australia?
Generally, financing your car purchase involves the following steps:
- Shopping for your car.
- Shopping for cheap car finance by comparing rates and other factors.
- Applying for the loan of your choice.
- Once approved, you obtain a purchase agreement from the seller.
- The lender pays the seller.
- You drive your car while making repayments.
Secured car finance vs. Unsecured car finance
Secured car finance uses the car as collateral. That means the lender can hold on to your new purchase if you fail to repay the loan. Because there’s less risk to the lender, secured car finance offers some of the best car finance rates in Australia.
Unsecured car finance has no collateral requirements, and there’s no risk of having the car repossessed. However, unsecured loans generally come with a higher cost of borrowing to mitigate the risk the lender is taking.
Fixed-rate car finance vs. Variable rate car finance
Fixed-rate car finance has fixed monthly payments because the interest rate will never change for as long as you’re paying off the loan. Variable-rate car finance has monthly payments that fluctuate from time to time to accommodate market ups and downs. A fixed-rate car loan protects you from unexpected increases in your monthly payments.
But, if the market rate falls, you will not be able to benefit from savings on interest. In contrast, a variable rate car loan can boost your savings if market rates drop. However, rates can also increase pushing the total cost of your loan upwards.
New car finance vs. Used car finance
New car finance restricts your purchase to brand-new cars. Depending on the lender, it might also cover cars that are less than a year or two old. Used car finance allows you to purchase second-hand cars, but there’s also a limit placed on the age of the car. Unless the car is classic or vintage, some lenders will not offer finance for car models below a specific year.
Other types of car finance options available in Australia
- Dealership finance. Some Australian car dealerships offer on-site financing under a buy-here, pay-here arrangement.
- Chattel mortgage. A specialised finance option for businesses looking to purchase a vehicle for company use. In this arrangement, the purchased vehicle is used as security for the loan.
- Operating lease. The lender owns the car, and you rent it for an agreed period after which you return it.
- Commercial hire purchase. The lender buys the car, and you get to use it in exchange for rental payments. When the car is fully paid for, you become the owner.
- Novated lease. A three-party financing arrangement involving you, your employer and the lender. The car is purchased via your employer who then covers the repayments by making deductions on your salary.
- Standard car lease. The lender owns the car and hires it out to you. You make monthly rental payments, and at the end of the lease, you can purchase the car, trade it in or return it.
How to compare car finance options when choosing the best loan
Finding a finance solution to drive your dream car requires some due diligence on your part. That means taking advantage of every car loan comparisons tool at your disposal. To begin with, here are a few factors you should consider when shopping around for what’s best for you:
- Interest rate. Will your car loan interest rate be fixed or variable?
- Loan fees and charges. Applicable fees can be viewed in our comparison table above, when you click “View fees and additional info.” It’s also a good idea to look at the comparison rate, which is displayed next to the interest rate. The comparison rate is inclusive of the interest rate and all standard loan fees and charges.
- Repayment flexibility. Typically, a flexible repayment plan allows you to make early or additional repayments without incurring extra fees. It should also allow you to choose weekly, fortnightly, or monthly payments that suit your circumstances.
- Loan terms and amounts. Find out how much you can responsibly borrow from each lender and the loan term you’re likely to get.
- Monthly repayments. Our car loan calculator is one of the crucial tools you can use to compare loans. Input your loan amount and term by adjusting the sliders and click calculate to discover your estimated monthly repayments.
- Unique features. Some loans come with unique features that may be of advantage to you. For instance, you might have a redraw facility that pays back your extra repayments for times you’re strapped for cash. Some lenders also offer pre-approval, which gives you more negotiating power at the car dealership.
Advantages of car loans
- You enjoy full ownership of the car without having to meet the total, upfront costs of purchasing the car.
- Car finance typically offers lower interest rates when compared to unsecured personal loans.
Disadvantages of car loans
- Car finance offers less flexibility than personal loans when it comes to how you’ll use the loan.
- If your loan option is secured, you may lose the car when you default.
What you need to apply
For general car finance requirements, you’ll need to supply the lender with the following:
- Proof of identity details – Your ID (you should be at least 18 years old), driver’s licence, and contact details.
- Financial information – This includes payslips, bank statements, and other documents that contain details about your assets, debts, and other financial commitments.
- Car details – Relevant documents and any information that facilitates a smooth application process.
How to apply for a car loan
After you have compared the car loan options featured in our comparison table above and made your final decision, go ahead and press the “Go to Site” button. Once you’re through to the lender’s website, the online application process usually involves the following steps:
- Fill in the online application form.
- Submit the loan application form together with required documents.
- Await the lender’s response.
- If approved, the lender will advise on the next steps.
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