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Learn more about car loans
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What is the best car loan?
No one can point to one car loan and declare it to be the ‘best’ of the lot. After all, the best loan for your financial situation may not be ideal for other borrowers. At RateCity, you can compare car loan features, fees and more to help you find a car loan that suits you. Read our guide and compare car loan offers from different lenders before choosing your car loan.
How to get the best car loan rate
There is no one “best” car loan rate that applies to everyone all the time. Instead, there are three ways to find the best car loan rate for you.
- Shop around: comparison websites like RateCity let you quickly compare car loan products from dozens of lenders. By filtering using your preferred interest rates, upfront fees and more, you can work out which car loans may be best for you.
- Get professional advice: to find the true value of a car loan, it’s not enough to look just at its interest rates and fees. You also need to look at its features. Because car loans can be hard to understand, you may want to get advice from a finance professional.
- Become a more credit-worthy borrower: if a lender is confident that you can afford to repay a loan, they’re more likely to lend you money on favourable terms. Lenders are more likely to offer lower interest rates if you have a good credit record, a reliable income, high savings and a significant deposit.
Can you repay a car loan early?
If you find yourself with extra money in your budget, you could make extra repayments on your car loan. This can help you pay your loan off sooner and pay less total interest. But some lenders don’t like missing out on interest – particularly for fixed loans – and charge penalty fees if you make extra repayments or close your loan early.
Some car loans come with a redraw facility, which lets you withdraw any extra repayments from your car loan if you need the money. Check the terms and conditions, because there may be fees involved.
What you should know before you get a car loan
How much can you borrow with a car loan?
There are two ways to approach car loans. The first is to decide what car you want, compare its cost to your savings, and calculate how much you’ll need to borrow. The second is to calculate the maximum you can afford to borrow and search for a car that fits your budget.
Either way, you might want to borrow more to cover add-on costs, such as application fees and insurance. Just remember that if you increase your loan amount or loan term, you will pay more money in total for your car loan.
Do you need a deposit for a car loan?
Making a deposit or down payment on a car loan may help you get better terms from the lender, pay off the loan faster and pay less in interest.
Some lenders will let you take out a car loan even if you don't have a deposit. However, no-deposit car loans, also known as 100 per cent LVR (loan-to-value ratio) loans, may have higher interest rates than 80 per cent LVR loans, where you put down a 20 per cent deposit and borrow the rest.
How much are car loan repayments?
If you choose a car loan with a variable interest rate, your repayments could rise or fall from month to month. So, if you’re planning your budget in advance, it’s worth leaving some wiggle room in case of surprise interest rate rises.
If you’d rather avoid the risk of rate rises, you could choose a fixed-rate loan, where the interest rate always stays the same. The downside is that you won’t enjoy any savings if interest rates fall.
One way to lower your monthly repayments is to add a “balloon payment” to your car loan. This is a one-off lump sum paid at the end of the loan period. While a balloon payment can lower your costs from month to month, you could end up paying more in total for your car loan, depending on how you handle your balloon.
Another way to lower your monthly repayments is to increase your loan term. However, making a larger number of lower monthly instalments means you’ll be charged more in total interest over the life of your loan.
When researching car loans, look at each loan’s comparison rate, which is likely to be higher than the advertised rate. The comparison rate includes both the interest rate and any fees, to give you a better idea of the car loan’s true cost.
What are some of the best car loan features?
What are secured and unsecured car loans?
When you apply for a secured car loan, you need to offer something as security, or collateral, to the lender. If you don’t repay the loan, the lender will seize your collateral. Car loans are often secured by the car you’re buying itself.
Unsecured car loans don’t have any collateral attached. This is riskier for lenders, so unsecured car loans often carry higher interest rates.
Should you buy a new car or a used car?
There are pros and cons to buying new or used cars with a car loan.
Loans for new cars often have lower interest rates than loans for used cars. This is because lenders feel more confident they can resell a new car for a decent price if you default on your payments.
However, new cars tend to cost more than used cars. This means you’ll need a bigger loan to buy one, which comes with its own risks.
Used cars tend to have more wear and tear and older technology, which can affect their resale value. That said, they’re often cheaper to buy, and depreciate more slowly than new cars, which lose value the moment they leave the dealership.
Sally is the Research Director for RateCity and a regular commentator on television and radio about personal finance matters. She is passionate about helping everyday Australians get access to affordable finance options, and helping people save money through smart budgeting and easing everyday expenses. Sally is a contributor to news outlets including Fairfax, News Ltd and Money Magazine, among others.
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Frequently asked questions
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 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.
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.
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.
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.
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 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 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.
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 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.
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 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 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.
Can I get a car loan with bad credit?
Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.
You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.
If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.
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 is an LVR?
The LVR, or loan-to-value ratio, 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 an LVR of 75 per cent. LVRs 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 LVR would now be 67 per cent.
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 no credit check car loan?
You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.
Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.
That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.
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.