Australians love their cars. In fact we access billions of dollars in finance for our car purchases each year. And the vehicles we prefer tend to be pretty nice ones. The average size of a car loan is $31,738.40. So it’s no wonder we look to finance our new wheels with finance.
Australia’s lenders (both traditional and online banks, digital money loan operators and credit unions) are all offering low interest rate car loans to suit the current market.
But before you jump in to access funds to buy your dream car, take a good look around and compare what’s on offer. And definitely take a look before you head to the car dealership and want to drive off with new wheels straight away.
The money market is energized right now and it pays to know the ins and outs, pros and cons of different finance platforms and car loans on offer. The loan offered by the car dealership may not be the best deal.
What can I use a car loan for?
You name the wheels, you can go out and get them - it’s just a matter of securing the finance, and choosing the type of loan that best suits you and your plans.
Your lender will want to know the exact purpose of the loan when you apply. They’ll likely take this into account when tailoring the loan size and conditions. Some kinds of loans are very flexible with the kind of car you are looking for, others will specify the age and value of the vehicle.
What car loans can I access in Australia?
The most popular car loan is an unsecured car loan: they’re flexible across a wide range of purposes, and if you have proof of a regular income and a decent credit history then this could easily be the car loan for you. They’re easy to apply for, and often have a fast turnaround so you could be living your dreams sooner than you think.
However, if you’d like to lock in a lower interest rate or perhaps your credit rating isn’t so grand, then a secured car loan may be your better option. You simply secure your loan with an existing asset you use as collateral. If you’re purchasing a new, or nearly new car, you can even put it up as security on the loan. The bank considers these loans less of a risk so they offer a lower interest. There is a longer application process, relating to the asset you’re offering as security, but in the end you may be able to borrow larger amounts and have a longer repayment term.
Self-employed, freelance or casual seasonal worker? A low-doc car loan may be what you’re looking for. All the funds without the lengthy loan application process. Lenders consider low-doc car loans to have more risk than a secured or unsecured car loan, so they’ll offer higher interest rates to offset that risk. But the plus for you - less documentation is required. You won’t need to provide as many payslips and tax returns as standard car loans. This means the process to apply is far simpler and less time-consuming.
Already have a car loan? Want to get a better one and save? Then you need a refinancing car loan. These are designed to take over your current car loan or loans, so you can save on interest rates and fees - and time paying multiple repayments. They’re even a good option if your credit score has improved as you’ll be able to get a better rate.
Some car loans offer a ‘balloon / residual payment’. This option means you pay off part of the loan as regular repayments, and then pay the final (larger) amount as a lump sum at the end of the loan.
This may look like a good deal as your initial monthly payments will be smaller. But you'll have to repay the larger final lump sum with interest, so the total cost of the loan is actually higher. If you choose this option, you'll need to be able to repay the lump sum plus interest when it falls due. Otherwise, you could end up needing another loan to manage your finances, which adds more to the real cost of your car.
Where do I find a car loan lender?
Traditional banks, car dealerships, credit unions, neobanks and online loan providers all offer car loans. Some have better rates than others, with less fees and charges.
The important thing is to compare the loans available to discover which one suits you best. Then once you know what kind of car loan you want you can then compare all of those styles of car loan on offer.
Compare, compare, compare
Research takes time but it’s made easier with comparison websites and rate calculators. Plus, it pays to spend this research time as it can save you a ton of money in the long run.
You can compare loans with the Plenti comparison calculator including comparison rates, interest rates, application fee, exit charges and loan term. The comparison rate is the one to watch as it will show one figure that encompasses the entire cost of the loan you are researching.
When you buy a car there are other costs you need to think about such as stamp duty, registration, car insurance and running costs, like petrol, maintenance and servicing. Some lenders offer loans that cover some of these costs as well as the car. It's better to pay for these costs up-front if you can — your loan will be smaller and you'll save on interest. Some lenders may try to sell you loan protection, gap cover, or tyre and rim protection. These products are not usually good value for money, so be aware of the extras being rolled into your loan.
How do I apply for a Car Loan?
Once you’ve decided which style of loan suits you, then you can reach out to the appropriate money lender. Though do be aware that multiple applications can hurt your credit score.
If you reach out to Plenti for a car loan rate suited to your circumstances, then that’s considered a soft credit check and won’t impact your credit rating. However once you apply then your credit rating will be under consideration.
Most banks and money lenders today will offer digital applications so you can apply online, but if you prefer a traditional bank then you can visit a branch near you to start your application.
What do I need to apply?
Depending on the type of car loan, you’ll need a certain amount of documentation.
Proof of income with pay slips and employment contracts, letters from your accountant, proof of home ownership or years in business, your ABN if self-employed and other documents. If you are applying for a secured loan then you’ll need proof of your assets and their value.
You’ll definitely need proof of identity for all personal loans, so make sure you have your drivers licence, passport, proof of residency et al.
What’s the easiest and quickest way to secure a personal loan?
Convenience is king, right? When it comes to car loan applications and approvals in Australia, online is the most convenient.
However, do be aware that the easiest and fastest way may not always be the best way to save money. A low-doc car loan is quick and convenient but comes with higher interest, a secured car loan has lower interest rates but will take longer to process.
What car loan rates can I expect?
The Reserve Bank of Australia reports that the average variable interest rate for a car loan is 14.41% and 12.42% for a fixed loan. But of course you’ll find lower and higher than both of those on the market.
Plenti will take your personal history and credit rating into account to create a rate specific just for you.