How do car loans work?

A car loan is a common type of personal loan. It allows you to enter a contract in which you borrow an amount of money and agree to pay it back over a certain time period (called a term). These payments can be made in regular payments (weekly, fortnightly or monthly) and a typical term is between 12 months and 10 years depending on the lender you choose and the amount you borrow.

In addition to requiring you to pay back the amount you borrow, interest will be charged on the balance, at either a fixed or variable rate. A fixed rate is an unchanging rate charged on the amount borrowed while a variable rate (sometimes called an “adjustable” or a “floating” rate) is an interest rate that fluctuates over time. Both fixed and variable have pros and cons so do your research and choose what’s best for you. 

The overall cost of your loan will be determined by risk-based pricing. This means we look at a range of factors, including your credit score and financial situation, to provide you with a personalised interest rate. The better your credit history, the better the rate we are able to offer. It’s one of the reasons we can offer you a car loan interest rate significantly lower than the big four banks and community credit union. The interest rate you receive will also be impacted by the type of car loan you choose.

How do online car loans work?

Plenti online car loans are an alternative option to taking out a personal loan through a financial institution like a bank.

Plenti online car loans are an alternative option to taking out a personal loan through a financial institution like a bank. Online car loans essentially cut out the middle man (your traditional lenders) to allow you to borrow funds directly from investors. These investors can be individuals or corporations.

Plenti loans offer competitive interest rates with an application process that’s simple and easy to navigate. Applying for a car loan online can be quick and convenient. You can apply for a car loan from any online lender regardless of time of day or location – all you need is a computer and Internet access. 

At Plenti, we offer fast, fair, flexible car loans loans to suit your needs. You can borrow between $10,000 to $100,000 for new and used cars under 7 years old on a secured car loan. There are no monthly or early repayment fees. This gives you the freedom to save more by making extra repayments on your loan. Finally, the interest rate you receive is 100% tailored to you. The better your credit history, the better your final rate will be.

How to get a car loan

Car loans can be sourced from many different types of lenders: banks, building societies, credit unions, finance companies, major car manufacturers and alternative lenders. 

When applying for a car loan you’ll be required to provide details about the car you’re buying, proof of identity and your income, assets, liability and general ability to make repayments. The first step in applying for a Plenti loan is to request a RateEstimate. Your RateEstimate is an initial assessment of your eligibility to apply for a loan with Plenti. It provides you with the estimated fees, charges and interest rate that may apply to your loan, taking into account a number of factors including your proposed loan term, amount, purpose and personal credit history.

Requesting a RateEstimate won’t impact your credit score and there’s absolutely no obligation for you to proceed with a loan application. It’s free, secure, and will only take 1 minute to complete. To be eligible for a Plenti car loan you must:

  • Be aged 21 or over
  • Be an Australian citizen or permanent resident
  • Be earning over $25,000 per year from a regular source of income that you can demonstrate
  • Have a good credit history

Plenti will consider a loan application if you are self-employed. Additional credit assessment criteria and requirements may apply.

What is a good car loan interest rate?

When shopping for a good car loan interest rate keep in mind that many advertised rates are designed to entice customers. When you delve a little deeper, you may be surprised to find there’s more than meets the eye. Some loans have low interest rates but caveats that cause you to pay more over the length of the loan.

Typically, the average interest rate on car loans is set somewhere between 5% and 17%. This wide variation ultimately comes down to the lender you choose, the type of car you choose, and your credit rating. Good credit scores of 600 and above tend to have rates between 5% to 10% while 0 to 509 tend to have interest rates between 10% and 20%. Ultimately, the higher your credit score and the newer the car, the better your interest rate will be. 

Your ability to pay will also be a factor in the interest rate you’ll receive. A strong employment background (3 years or more) can also establish your capacity to pay. The best way to get a good car loan interest rate is to:

  1. Be in stable employment
  2. Have a good credit history
  3. Offer a deposit
  4. Get in touch with Plenti

Once you have your rates, compare features such as:

  • Application fee
  • Other fees
  • Extra repayment fees
  • Loan term
  • Loan conditions

A good interest rate is arguably the most important component of a car loan, along with flexibility to make extra repayments.

At Plenti we have low rate car loans from 4.69% p.a. (comparison rate 6.03% p.a.)* for up to $100,000 for new and used cars.

How do car loan repayments work?

When you enter a contract for a car loan, the amount of money you borrow needs to be paid back within a certain period of time. This amount will have interest attached, which will be incorporated into your monthly, fortnightly or weekly repayments. 

Car loan interest is relatively simple and is generally no different to the interest you might pay on a home loan. You pay interest on the amount you borrow, which may be at a fixed rate (where the interest rate is locked in for the term) or a variable rate (where the rate may go up or down over the term), plus any fees and charges. 

A car loan may be secured or unsecured, depending on whether you put up your car (or other asset) as security for the loan. With a secured loan, you usually pay a lower interest rate than for other kinds of lending – but it also means that if you fall seriously behind on your repayments, your credit provider has the right to sell your car (or other asset) to get their money back. Secured loans are usually only available for newer cars, because they are more valuable as an asset. 

With an unsecured loan, you do not need to mortgage your car as security, but you will likely pay a higher rate of interest because the credit provider is taking a bigger risk.

Some car loan lenders may offer reduced monthly payments if you agree to pay a one-off lump sum, otherwise known as a balloon payment. Consider whether the total repayments will be higher with the balloon payment than without before making your decision.

How long is the average car loan?

A shorter loan means higher monthly repayments, while a longer loan period has lower monthly repayments but more interest being accrued. Bear this in mind when deciding on the length of your loan term.

At Plenti we have flexible loan terms from 3, 5 or 7 years. Borrow between $10,000 and $100,000 to buy a new, demo or used car from a dealer or a private sale. The choice is yours when purchasing the vehicle and how long you want to be paying it off. We’re all about low rate car loans that are 100% made for you. 

Should I get a car loan? 

The biggest benefit of buying a car with cash is that you own the car outright and you won’t have to pay any interest. However having the cash you need often isn’t viable for most people. Cars can cost a lot and financing your purchase with a car loan means your dream car is possible. Financing your car even when you do have cash in the bank also means that you have funds available for other expenses that may arise. 

A car loan doesn’t have to be used for purchasing an actual vehicle. You can use an unsecured personal car loan to cover any costs associated with purchasing a new or used car, this includes but is not limited to, insurance, registration, tyres, aftermarket upgrades, roadside assistance or pre-paid maintenance agreements. You can also use an unsecured car loan to fund repairs of an existing vehicle.

Thinking about getting a car loan? We recommend completing a car loan quote. We’ll provide you with a summary of your car loan repayment calculations across different terms. This makes it easy for you to complete a loan comparison with other lenders and choose the right option for you.

Sebastian Paulin
Sebastian has over 12 years experience in consulting, marketing and finance. He has worked with Australia’s largest banks and emerging fintechs across lending, investing and insurance. Sebastian has a Bachelor of Commerce and Bachelor of Laws with Honours.

Do I need a deposit for a car loan? 

In many cases you are not required to put down a deposit to secure a car loan. This type of no deposit vehicle loan is subject to several variable circumstances. 

At Plenti, we use risk-based pricing to set the overall cost of your loan. This means we look at a range of factors, including your credit score and financial situation, to provide you with a personalised interest rate. The better your credit history, the better the rate we are able to offer. It’s one of the reasons we can offer you a car loan interest rate significantly lower than the big four banks and community credit union. The interest rate you receive will also be impacted by the type of car loan you choose

Generally speaking, Plenti provides secured and unsecured loans to Australian residents. You can apply for a loan for a range of purposes, including purchasing a new car, home renovations, debt consolidation, a major event, a holiday, or even to finance your small business.
The best way to assess your eligibility to apply for a loan with Plenti is to request a 1-minute RateEstimate.

Are car loans secured or unsecured?

While most car loans are secured there is a rising number of car shoppers taking out unsecured car loans. This is largely because of online convenience, the flexibility such loans offer, and great interest rates. 

An unsecured loan offers a range of benefits. If you’re a reliable borrower and don’t want to use the vehicle you’re buying as collateral, an unsecured loan is the way to go. As there is no collateral, if you default on your loan repayments your lender cannot repossess the vehicle you have purchased with the loan.

Both secured and unsecured loans come with fixed and variable rates. What you choose is up to you. The price of your car should be a real factor in your decision to take out a secured or unsecured loan. For example, if you’re looking at purchasing an upmarket car, you’ll likely have to borrow more. This will affect things like how long it takes to repay the loan and the interest that you’ll accumulate. 

How do I refinance a car loan?

If you don’t have enough money saved to purchase your dream second-hand vehicle, a used car loan could be the way to go. Used car loans are personal loans used to finance the purchase of a second-hand vehicle.

To refinance your car loan you simply need to get approval for a new loan that covers the amount you still owe on your existing car loan. The funds from your new loan will pay the debt out. 
Refinancing is all about finding a better deal. You’ll want lower interest rates, better and more flexible terms – basically anything that will help save you money long-term. Make sure you meet the eligibility criteria and be aware of all fees and charges, and start saving immediately. Once paid off you can close your previous loan and start repaying your new, more affordable, loan.

If you don’t have enough money saved to purchase your dream second-hand vehicle, a used car loan could be the way to go. Used car loans are personal loans used to finance the purchase of a second-hand vehicle.

Similar to new car loans and personal loans, used car loans involve borrowing a set amount of money and then paying it back with interest over an agreed amount of time. The loan term and the interest rate will vary.

A ‘used’ car is technically defined as any vehicle that has been previously registered in Australia. Buying a used car allows you to keep the cost of the vehicle down by avoiding high depreciation costs. The moment you drive a new car out of a dealership you can lose thousands of dollars in market value.

Used car loans can be secured or unsecured and have either fixed or variable rates. Some lenders will only offer loans on used cars up to a certain age, as they consider older cars too risky to finance. Other lenders may consider offering a loan on an older vehicle if they are seen to hold their value.

How do interest rates work on car loans? 

Interest rates refer to the amount you pay each year to borrow money. It’s shown as a percentage and reflects the total amount you pay on your car loan. Interest rates can be fixed (unchangeable) or variable (changeable). The comparison rate is the total rate of interest you’ll end up paying. This includes the basic interest rate as well as any additional upfront or ongoing fees and charges.

When determining your car loan interest rate a lender will weigh up several factors. These can include:

  • Credit score and credit history
  • The loan term
  • Your down payment
  • Whether the car you’re buying is new or used

Just because you see a low-interest rate advertised for a car loan with one particular lender, don’t automatically think that’s how much you’ll end up paying.

How do you calculate car loan payments?

The repayments you make on a car loan will be made up of two parts: the part that reduces your balance to pay off the loan, and the part that covers the interest on the loan. Interest is a fee you pay for using someone else’s money to make a purchase.

For an accurate estimate of the costs of your loan, we recommend completing a car loan quote. We’ll provide you with a summary of your car loan repayment calculations across different terms. This makes it easy for you to complete a loan comparison with other lenders and choose the right option for you.

Factors that make up your loan will include:  

  • Principal amount
  • Loan term
  • Repayment schedule
  • Repayment amount
  • Interest rate

This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of Plenti as at the date of publication and may later change without notice.