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In our car loans guide:
What is a car loan?
A car loan is a type of
secured personal loan. With a car loan, the loan is secured against the value of the car being financed.
This means the car finance provider can reclaim the car to recoup its costs if you can’t repay the loan.
For this reason, car loans are
less risky for lenders (and cheaper for borrowers) compared to unsecured personal loans.
Car loans can be used for new or used cars, and for dealer or private sales.
With a secured car loan you should get:
- A lower interest rate (usually a fixed rate)
- Flexible terms and repayment options
- No deposit required
- Simple and quick approvals
Best car loan interest rates in Australia in March 2023
As you’ve likely heard in the news, interest rates have been rising.
lowest rate car loan has an advertised variable rate of 6.24% for new cars (comparison rate* 6.79%)
If you're buying an Electric Vehicle, the rate drops to 5.54% (comparison rate* 6.09%).
The table below shows the impact of finding a low interest car finance rate on your
Best car loan rate comparison
|Car loan amount||6% interest||8% interest||10% interest|
Comparison car loan repayment examples are calculated using monthly repayments with a fixed interest rate on a 5-year term. They do not include any fees that may be charged by a lender in addition to interest.
Get an estimate of your regular loan repayments based on different loan amounts and interest rates using our car loan calculator.
IMPORTANTLY, you won’t know exactly what interest rate you may get until you provide some details about yourself (you can check your rates right now using Money Matchmaker®.)
This is because car finance providers tailor your rate based on your credit score and other information you provide in your application.
How much can you borrow with a car loan?
Lenders typically offer car loans of between $5,000 and $150,000.
BUT how much you are able to borrow will come down to your financial situation.
Here are some of the factors lenders will look at:
- Your income (salary, any investing income etc.)
- Your regular expenses (groceries, bills, childcare etc.)
- The assets you own (e.g. a home)
- Your other debts (like credit cards or other personal loans)
If you have credit cards, lenders will look at the TOTAL limits of the cards, not the balance, when assessing how much you can borrow.
How long can you get a car loan for?
Car finance is usually offered for between two and seven years. The most common loan term is five years.
The term of your car loan is IMPORTANT because it determines how much your regular repayments will be and how much the loan will cost you overall.
Paying off your car loan in less time will
save you money in interest. The trade off is you'll have higher regular repayments.
This example demonstrates the point…
Car loan comparison based on loan term
|Loan repaid in 5 years||Loan repaid in 4 years|
Total to be repaid
This is a hypothetical calculation, does not take into account loan fees and assumes the interest rate is fixed for the life of the loan.
Car loan fees to watch out for
These are some of the common car finance fees to watch out for so you get the best car finance deal you can:
- Loan establishment/application fees
- Annual and monthly fees
- Extra repayments fees
- Early payout fees
- Missed repayment fees
Car loan fees can be significant. This is why you need to look for the lowest COMPARISON RATE.
The comparison rate includes the interest rate and fees and gives the best indication of the true cost of your.
Car loan comparison based on fees
|Loan with fees||Loan without fees|
Total to be repaid
This is a hypothetical calculation, assumes the up front fee is added to the loan amount and the interest rate is fixed over the life of the loan.
Car loan features that can save you money
Getting the right car loan features can mean a better deal for you and BIG SAVINGS.
Here are the top ones for your shopping list:
- Ability to make extra repayments without penalty
- Redraw (meaning you can withdraw any extra repayments you have made back out of the loan if you need to access cash)
- No fees for early loan payout
- Weekly, fortnightly and monthly repayment options
Recap: How to get the cheapest car loan
Given how car finance is advertised, you’d be forgiven for thinking that the lowest interest rate equals the cheapest car loan.
BUT to get the cheapest car loan deal overall, compare options looking for a combination of:
- A low interest rate
- No or minimal loan fees (this will be shown in the comparison rate)
- The shortest loan term you can afford
- Loan features that will give you flexibility to pay off the loan early
Find the best deal on car loans
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Am I eligible to get a car loan?
To qualify for a car loan, you'll typically need to meet these eligibility criteria:
- Be over 18 years of age
- Be an Australian citizen or permanent resident
- Have a regular source of income (lenders typically look for six months of steady income)
How to apply for a car loan
The exact process of applying for car finance will depend on the lender you apply with, but typically it’ll go something like this:
- Step 1. Compare car loan providers (consider the factors listed above to make sure you get the best deal)
- Step 2. Complete a loan application
- Step 3. Provide supporting documents (payslips, bank statements etc.)
- Step 4. Get pre approved by the lender
- Step 5: Go car shopping, then…
- Step 6: Apply for full loan approval based on your chosen car
- Step 7: Sign the loan contract and provide proof of insurance to the lender
- Step 8: The loan funds will be transferred to the car seller directly
How long does it take to get approved for a car loan?
A lot of car finance providers can pre-approve your car loan on
the same day you apply.
For a fast turnaround, you’ll need to be able to prove your identity and supply documents to prove your income and expenses.
This usually includes your most recent pay slips, bank statements and home loan statements).
Typically, you can expect to be driving your car in 2-3 business days.
How will a lender work out my car loan interest rate?
Lenders will set the interest rate they charge based on how risky they think you are. More risk equals a higher interest rate.
Here are the main factors lenders usually look at:
- The type of car you’re buying: Newer cars tend to attract a lower interest rate. Many lenders offer their lowest car finance rates for electric vehicles.
- Your credit score: A higher credit score usually means a cheaper interest rate.
- Are you a homeowner?: Some lenders see property owners as a safer lending bet so offer them lower rates.
- How stable is your income?: Borrowers in long-term employment generally get a lower interest rate than someone who’s just started a new job or has an irregular income.
- Do you have a deposit?: Some lenders may give a lower rate to borrowers who contribute a deposit. This tends to be more common with bad credit car loans.
What’s the best car finance option for you?
So far we’ve been talking about secured car loans, but it’s not the only way to finance a car in Australia.
Depending on the situation and the vehicle's purpose, there are some other options available (plus variations on a secured car loan).
Here’s are some of the main options.
- Unsecured personal loan
- Bad credit car loan
- Low doc car loan
- Novated lease
And if you're financing a business vehicle...
- Chattel mortgage
- Operating lease or finance lease
Other options for financing a car
Adding the car purchase to your mortgage
This is known as home loan refinancing. It can be appealing because your home loan usually has a lower interest rate than you can get with a car loan.
BUT long home loan terms (up to 30 years) can make this an expensive option over time.
Putting it on your credit card
Can be a convenient option, but high interest rates apply. Also, unlike a car loan, there is no fixed timeframe for paying off credit card debt.
Commonly asked questions about car loans
What credit score do I need for a car loan?
This depends on the lender. It also depends on which company they check your credit score with as the score ranges vary. As an example, Equifax (one of the major credit reporting companies operating in Australia) classifies anything above 669 as being a ‘good’ credit score.
Having a good credit score means you would be eligible for a loan with most lenders (depending on your other circumstances).
But having a bad credit score isn’t the end of the world. It can simply mean you need to apply with more specialist lenders.
If you have a bad credit score and your application is accepted, you may be offered higher interest rates and/or more restrictive loan terms.
Avoid making multiple car loan applications in a short space of time as this can damage your credit score.
Find out what your credit score is for FREE before you apply for a loan.
How do I give myself a better chances of car loan approval?
The following steps could help make you a better candidate for a car loan:
- Check your credit score in advance and take steps to improve it if it’s not in good shape.
- Avoid making loan applications if you have started a new job recently.
- Don't apply for loans you can't afford. Work out how much you can afford to repay comfortably each month and stick to that as your maximum budget.
- Review the lender’s lending policies and eligibility criteria before you apply.
If your need help, you could consider working with a car loan broker. They are experts who can guide you through the process and can be particularly useful for complex applications.
Do I need to have a deposit for a car loan?
As long as you can afford the monthly repayments, you generally, don't need a deposit in order to get a car loan.
Where can you get a car loan?
You can apply for a car loan with banks, car dealerships, car finance brokers or online lenders.
They all have different products and rates so it can be hard to find the right one for you.
We recommend using Money Matchmaker™ to do the leg work for you. It's like applying direct with a range of lenders all at once.
Which lender is best for a car loan?
This really depends on what you want from a car loan deal.
Online car loan lenders often have the lowest interest rates. They can also approve loans quickly in many cases, if your application is straightforward.
The reality is shopping around is the best way to find the most suitable lender for you.
What are the pros and cons of car loans?
It's important to make an informed decision about whether a car loan is right for you. To help you do that, here's a summary:
Pros of car loans
Means you can spread the cost of your car out over a number of years
It's often a relatively easy and fast process to get a car loan
With a car loan you may be able to buy a better and/or more up-to-date model of vehicle, assuming you can afford the repayments comfortably
Cons of car loans
It will cost you more than buying a car using savings
Some products can be complex, particularly how the interest rates are advertised by some lenders
Car loan fees can add up to a lot and are not always listed clearly
Should I get a car loan with a balloon payment?
Choosing a car loan with a large, one-off balloon payment at the end can be a good way of reducing your regular loan repayments. The thing to remember is that it will likely mean the loan will cost you more overall.
The right car loan can save you $1,000s
FIND YOUR CAR LOAN
Loan Amount: $30,000
Establishment Fee: --
Total Interest Paid: --
About the Author
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
*Information about comparison ratesComparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $30,000 over 5 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.