A car loan is finance used to buy a new or used vehicle, repaid in regular instalments over a set term, usually one to seven years. Most car loans are secured against the car itself, which is why they generally carry lower rates than unsecured personal loans.
Types of Car Finance
- Secured consumer car loan: the standard option for personal use. The car is the security.
- Unsecured car loan: no security, used for older vehicles that do not meet a lender's age limit. Higher rates.
- Chattel mortgage: a business car loan for vehicles used mainly for business purposes, often with GST and depreciation advantages.
- Novated lease: a three-way agreement between you, your employer and a financier, paid from your salary.
Balloon Payments
Many car loans allow a balloon (residual), a lump sum due at the end of the term. A balloon lowers your regular repayments but increases the total interest paid, and you need a plan to pay it, whether by refinancing, selling the car or paying cash.
What Lenders Look At
- Credit score and repayment history
- Income and employment stability
- The vehicle's age, value and type (dealer or private sale)
- Deposit, if any
- Existing debts
Tips Before You Buy
- Get pre-approval so you know your budget before you negotiate
- Compare the comparison rate, not just the headline rate
- Check the vehicle's age limit with the lender before choosing an older car
- Be careful with dealer finance, which may bundle add-on insurance products
Next Steps
See the car loans page or estimate repayments with the car loan calculator.