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Applying for a car loan
Money can help you find the best deal you can on a car loan in three simple steps:
Car loans in Australia – November 2024
Sean Callery
Editor
Currently, the lowest car loan interest rate is 5.66% p.a. (comparison rate 6.45% p.a.^) based on loans on Money’s database. That's a fixed rate secured car loan for borrowers with a perfect credit score and very strong application overall. But rates for a lot of borrowers will be higher than this, depending on your credit score and overall application. In fact, according to the Reserve Bank of Australia, the average fixed term personal loan rate (including car loans) is 10.05% p.a. Variable car loans are currently cheaper than fixed rates, on average.
Car finance in Australia by the numbers
Average new car loan
$47,566
Average used car loan
$32,528
Average monthly car loan repayment (over 5 yrs)
$1,012
Total car loan borrowing in Sept 2024
$1.56 billion
Portion of car lending for new cars
38.9%
Sources: Car loan data from real Money.com.au customers, ABS, RBA.
Car loan interest rates: advertised versus actual rates
For most borrowers, it's unlikely you'll be offered a lender's lowest advertised car loan rate.
Car loan interest rates generally come in ranges. This is the same for other kinds of personal loans. Where your actual rate will sit within the lender's rate range will depend on your application.
The riskier your car loan application is, the higher the interest will be. This is why it's very important to take 'advertised rates' on car loans with a large pinch of salt.
The key to getting your best car loan rate is comparing personalised quotes.
10 factors that determine your (actual) car loan interest rate
1. Your credit score
Borrowers with the highest (best) credit scores, generally qualify for the best car finance rates in Australia. Lenders like borrowers with a proven track record of managing credit responsibly, which is what your credit score is designed to show.
If you need a bad credit car loan, you'll be charged a higher interest rate, generally with 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.
2. The age and type of car
There are a few key points here:
- The cheapest car loans in Australia are generally ones available for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs).
- Around 40% of the lenders we analysed offer a discounted car loan interest rate for EVs.
- Lenders offer the lowest car loan interest rates on brand new cars or demo models.
- Some lenders have tiered interest rates for used car loans that increase based on the car's age (so not all used cars will attract the same rate).
- Other vehicle types can be financed with what is effectively a car loan, and rates may vary for other vehicle types, such as caravan loans, boat loans, motorcycle loans and truck finance.
3. The car loan term
Some lenders charge higher interest rates on car loans with a longer term. Again this comes down to the greater risk for the lender when lending over a longer period.
You can use our car loan repayments calculator to estimate your repayments based on different terms.
4. The lender you choose
Car loan interest rates can vary massively from one lender to another. Comparing rates from multiple lenders based on your situation will help you find the lowest rates you qualify for.
But there's a right and a wrong way to do this:
Wrong: Making applications with multiple lenders to see what offers come back (which could hurt your credit score).
Right: Using a service like Money (or a car loan broker) to compare multiple interest rate offers, without it impacting your credit score.
5. Fixed or variable interest rate
Most car loan interest rates in Australia are fixed. In fact, over 75% of the car loans on Money's lender database come with a fixed interest rate.
But for lenders that do offer the option of a fixed and variable rate car loan, currently more fixed rates are lower. This can be a sign that lenders expect interest rates in the economy to fall from current levels.
6. Your financial position
You'll generally qualify for the lowest car loan interest rates if you have:
- A high, reliable income
- Low regular expenses relative to your income
- Low levels of overall debt (e.g. credit cards and other loans)
7. Your employment status
You may qualify for a lower car loan interest rate if you're employed full-time and have been in the same job and industry for a sustained period.
Casual and self-employed people can apply for a low doc car loan, but these usually come with higher interest rates.
If you're an ABN holder and will be using the vehicle mostly for business purposes, you can apply for an ABN car loan. Again rates on this kind of finance will likely be different to consumer car finance.
8. Whether you own a property
Over the years, we've found it's common for lenders to consider whether the borrower owns a property when calculating their car loan interest rate.
Property owners generally qualify for lower car loan rates. Property owners who also have a high level of equity in their property (i.e. more of their home loan is paid off), get the lowest rates.
This might not seem particularly relevant for a car loan. But the way lenders look at it, it's another signal about how risky a borrower is.
Some lenders simply bundle this factor into the overall calculation, while others (Macquarie Bank is an example) advertise different car loan interest rates specifically for property owners.
9. Your loan amount
Your loan amount can impact your car loan interest rate. The impact could be either positive or negative depending on the situation. Here are two scenarios to illustrate the point:
- For an already higher risk borrower, a larger loan amount adds to the risk and the lender may reflect this with a higher interest rate.
- Some borrowers may charge a lower rate to low-risk borrowers with larger loan amounts (the same thing commonly happens with home loan rates).
10. Your loan-to-value ratio (LVR)
The loan-to-value ratio on a car loan is the car loan amount expressed as a percentage of the value of the car it's being used to finance.
A higher LVR (where you're borrowing a higher percentage of the car's purchase price) may mean a higher interest rate.
Note, some lenders will allow you to borrow more than 100% of the car's value. For example, you might get finance to buy an electric vehicle, plus a home charger and battery. If you own another vehicle, you may be able to borrow more than 100% of the value of a new car, using your current car as additional security.
What can you get with a car loan?
A car loan allows you to borrow a set amount of money to buy a vehicle, and repay it plus interest over a fixed term. The vehicle you purchase secures the loan. This means the lender can reclaim it if you cant repay the loan.
Here's what car loans offer:
- Borrow from $5,000 - $200,000
- Can be used for new or used cars
- Loan terms from 1 - 7 years
- Fixed or variable interest rates
- Interest rate tailored to you
- Weekly, fortnightly or monthly repayments
- Some loans allow for extra repayments and early payout
- Balloon payment option
- No deposit required
How to get the best car finance deal (in 6 steps)
1. Get a secured car loan
Some lenders advertise unsecured personal loans as being 'car loans'. A secured car loan will almost always have a lower rate.
2. Apply for car loan pre-approval
Getting car loan pre-approval means you won't be rushed into a car loan with a high interest rate at the last minute.
3. Shop around
Only apply for a car loan once you've compared multiple lenders and you’re confident you’ve found the lowest interest rate you qualify for, with low fees.
4. Consider smaller lenders
Some of the cheapest car loan interest rates may be offered by lenders you've never heard of.
5. Match the loan to your car
For example, if you're buying an EV, be sure to take advantage of the discounts available with specialist 'green car loans'. If you're buying a brand new car, loans specifically for new cars typically offer lower interest rates than generic car loans.
6. Make sure your loan is flexible
Look for the flexibility to make extra repayments and pay off the loan early without penalty. 'Redraw' is another handy feature, as it means you can withdraw any extra repayments you have made if you need to access cash.
BONUS TIP: Give yourself a better chance of car loan approval
It’s a good idea to do some preparation before you start applying for car loans. Check your credit report so you can anticipate any issues and work out a comfortable budget for making car loan repayments each week, fortnight or month. Then only apply for car loans that are easily within your budget.
Am I eligible to get a car loan?
To qualify for a car loan in Australia, 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 (most lenders look for six months of steady income)
- Have no major issues in your credit history
- Be buying a car that meets the lender's criteria (a new or used vehicle up to 12 years old, with no finance outstanding).
How much will your repayments be?
See your estimated car loan repayments per week, fortnight or month.
Car loan repayment calculator
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Car loans FAQs
What is a car loan?
A car loan is a type of secured personal loan. The car you're buying is the security, meaning the finance provider can reclaim the car to recoup its costs if you can’t repay the loan.
This reduces risk for the lender and means car loan interest rates are usually lower than 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 low fixed rate
- Flexible terms and repayment options
- No deposit required
- Simple and quick approvals
What’s the best car finance option?
This guide has focussed on secured car loans, but it’s not the only way to finance a car.
Depending on the situation and what the vehicle is used for, there are some other options available:
And if you're financing a business vehicle...
What about 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 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.
How do I apply for a car loan?
The exact process will depend on the lender you apply with, but typically it goes like this:
Step 1. Compare car loan providers 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 car insurance to the lender Step 8: The loan funds will be transferred to the car seller directly
What car loan fees are there?
The most common car finance fees are:
- Loan establishment/application fees
- Annual and monthly fees
- Extra repayments/early payout fees
- Missed repayment fees
The comparison rate gives a closer estimate of the overall cost of your car loan based on interest AND fees. Lenders are legally obliged to show this when advertising 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 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 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.
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 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.
Is there car finance available for specific vehicle manufacturers?
Generally your car finance options are the same regardless of what car you're buying. The exception is the finance offered through the manufacturer itself or a particular dealer.
We've written guides on the financing options and deals available for some of the most popular car manufacturers in Australia:
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 costs are displayed (or not displayed) by some lenders
- Car loan fees can add up to a lot and are not always listed clearly
What is a good car loan interest rate in Australia?
This will depend on who you are and what kind of car you're buying. For a borrower with a good credit score buying a brand new car (particularly an EV), you should generally be aiming for a car loan interest rate below 8% p.a. and ideally closer to 6% p.a.
How can I get a lower car loan rate?
To be eligible for a lower rate car loan, here are some steps to consider:
- Compare rates with multiple lenders. It's very unlikely that the first rate you come across will be the lowest you can get.
- Negotiate the rate with the lender. You have nothing to lose by asking for a lower rate.
- Buy a newer car that's eligible for a lower interest rate.
- Contribute a deposit towards the cost of the car so you're borrowing less.
- Improve your credit score so you move into lenders' lower interest rate brackets
What is the comparison rate on a car loan?
The comparison rate on a car loan is designed to represent the true cost of the loan. It factors in the loan's interest rate as well as most fees charged.
As the name suggests, the comparison rate is designed to make it easier to compare loans based on their actual cost. It will highlight if a car loan has a deceptively low interest rate, but high fees inflating the overall cost.
Legally, car loans must be advertised with a comparison rate.
Will I get a lower car loan rate with a dealer or a bank?
Dealer finance is not generally known for offering fabulous value for money. In many cases, you'll pay a higher interest rate for the convenience of getting your car and the finance taken care of under one roof.
The government's Moneysmart website suggests you should "compare loans before visiting a car dealer".
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Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.
Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
Important information
^Comparison rate warning
Unless otherwise stated, car loan comparison rates are calculated based on a loan amount of $30,000 repaid over a 5-year term. The comparison rates only apply to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan. Check with the provider for full loan details, including rates, fees, eligibility and terms and conditions to make sure the product is right for you.
Products, features and information displayed
General information only The information on this page is general in nature and has been prepared without considering your objectives, financial situation or needs. You should consider whether the information provided and the nature of any car loan product is suitable for you and seek independent financial advice if necessary.
We are not providing you with a recommendation or suggestion about a particular car loan. You should read the relevant disclosure statements or other offer documents before deciding whether to apply for or continue to use a particular product.
What products, features and information are shown While we make every effort to ensure all car loans available in Australia are shown in our comparison tables, we do not guarantee that all products are included.
Our product comparisons may not compare all car loan features and attributes relevant to you. Product information, such as interest rates, fees and charges, is subject to change without notice. Before acting on any information, you should confirm the relevant product information with the lender.
How car loans are sorted and filtered by default Users can easily change the sort order and apply product filters to our product comparison tables. However, when you arrive on a page initially, by default car loans are sorted by:
- Lowest loan interest rate, then;
- Lowest establishment fee, then;
- Lowest ongoing fee, then;
- Provider name (A-Z)
Car Loans Available Through A Broker
Some car loan products listed in our tables are available through a broker. These are the products with an option to ‘Check Eligibility on Money.com.au’. Brokers may not be able to offer loans from every provider and there may be more suitable loans for your personal circumstances.
Brokers are not authorised by Money's Australian Credit Licence and operate under their own Australian Credit Licence, or as a credit representative of another Australian Credit Licensee. Brokers can make recommendations about loan products that may suit your objectives, financial situation and needs.
Commission we may earn
Our tables feature all car loans available from lenders on our database that match the search criteria selected. Lenders do not pay to feature in our tables, nor do we earn commission if you click to visit a lender’s website. The order of the products in the table is not influenced by any commercial arrangements.
If you get a car loan as a result of visiting this page, we may earn a commission.