How To Finance A Car In Australia: A Complete Guide

There are several reasons why people wish to own a car. Convenience to travel anywhere, social status, family road trips, and freedom from public transportation, to name a few. But only some have the money to make an upfront payment to buy it.

With a wide range of available car financing options, owning a car is no more a dream. In this guide, we will share opportunities to finance a car and tips on how you can make choosing a loan a less stressful and enjoyable experience.

1. What Is A Car Loan?

A car loan is a personal loan that helps you buy a new or used car. You need to repay the loan amount with interest over the loan term, usually between 1 and 7 years.

2. What Are The Different Types Of Car Loans?

Before applying for a car loan, you need to know the types of loans available and what is good for you. You also must compare various vehicle loans before applying for them.

The following are the available types of car loans:

• Fixed loans: This loan has a fixed interest rate and repayments throughout the loan tenure. You know how much you will have to repay monthly towards loan repayment. Car dealerships generally offer such types of loans.

• Variable loans: These loans come with a variable interest rate. The repayments depend on it. If interest rates increase, your repayments will also increase. On the other hand, if interest rates decrease, your repayment amount will also decrease. Such loans do not have an early exit charge. It can be a good option if you plan to pay the loan early through advance/additional repayments.

• Secured loans: Many lenders offer secured car loans where your car is the security. In other words, if you fail to make timely repayments, the lender can reclaim your car and sell it in the market to recover the loan amount.

• Unsecured loans: As the name suggests, applicants do not have to provide assets or security to obtain such loans. Due to this reason, such loans attract a higher interest rate. This type of loan is majorly for "used cars".

• Chattel mortgages or business loans: This type of loan is for businesses that use cars for business purposes. Here, a company takes out a car loan and pays it off over the loan duration.

• Hire purchases: The car possession remains with the bank/ lender throughout the loan term. You will pay a deposit and repay the loan in instalments. After the repayment period ends, you gain complete ownership of the vehicle. It is a great financing option to spread the entire vehicle cost over several years. You can get certain flexibility over the loan repayment terms, such as loan duration and frequency of repayments: weekly, monthly, or fortnightly.

• Novated leasing is an agreement between an employee, his employer, and the car-financing firm. An employee sacrifices part of his salary to fund a new car. This reduces their take-home salary and lowers their tax obligations as they pay the car off.

3. Steps To Finance A Car In Australia

Buying a car is one of the many financial decisions in a lifetime. Finding the best way to finance a vehicle can take time and effort. 

You must study, research, and compare various factors to determine the best financial deal. Here we have listed the six best ways to finance a car:

Step 1: Understand The Basic Components Of a Car Loan

Understanding the various loan components is essential to determining the right car loan for your needs:

• Types of a car loan

• Interest rates

• Comparison rate

• Loan period (shorter terms have lower interest rates and vice versa. Though longer terms have low repayments, you end up paying more interest overall)

• Loan lender

• Car loan repayments

• Loan conditions (If the loan is only for a second-hand car or a new car and the car age limits)

• Car loan charges: Upfront fee, monthly service fees, Ongoing fee, break fees, Missed payment or default fee, Discharge fee, Late payment fee

• Other costs: Stamp duty, Car insurance, Registration, Running costs, such as maintenance, petrol, and servicing

Step 2: Compare Car Loans On The Above Parameters

Before you go to a loan lender or dealership, it is vital to shop around and compare to find the lender that offers the best agreement. Reputed comparison websites can also help compare and assess car loans on the above aspects.

Additionally, reviewing your credit score, as a good credit score, can help reduce your interest rate and make you eligible for a higher loan amount. Visit Australia's credit reporting bureaus to check your credit score.

One can access it for free once a year. Paying and paying off debts on time are the best ways to improve your credit score.

Step 3: Find Out The Best Way To Finance A Car In Australia

There are several car finance options in Australia to buy a new or used vehicle, such as:

• Taking out a personal loan

• Borrow money from reliable friends and family

• Use your Credit card (a good option when the car cost is very low)

• Take out a loan from a financial institution such as a credit union or banks

• Salary sacrificing a car

• A low-interest-rate car loan from an online loan lender

• Choose a car dealership financing option

Out of all, non-bank lender or car dealership financing is the best option for its fast and hassle-free execution, lower interest rate, simplicity, lower monthly payments, and flexible deals.

Step 4: Learn About The Requirements For Car Finance In Australia

Having now an idea of what type of loan you want and the right place to apply for it, the next thing is to learn about the eligibility criteria to apply for a car loan.

Regardless of the car finance option, you must fill out several forms and submit documents as part of the car loan application process. Here are the most common documents and car details you need at the time of applying for a car loan:

• 18 years or above

• Up to two loan applicants, both 18 years and above

• Minimum 100 points of ID that includes your driver's license, Medicare card, passport, and more

• The details of your vehicle: the brand and model, engine number, registration number, purchase price, status (new or used)

• Be in active employment or obtain a pension. You can consider Centrelink as a second income along with consistent income.

• You are earning Proof: 90 days of bank statements (3 recent payslips), proof of employment and employer information. You must submit the last two years of tax returns if you are self-employed.

• Have no paid or unpaid defaults or active payday loans

• Moveable or Immovable Assets and liabilities you own, such as real estate, existing loans, ongoing expenses, and credit card debts.

• Not have been bankrupt or charged with a legal offence.

• Good credit history

• Hold a valid driver's license or passport.

Step 5: Use Loan Calculators To Determine Your Monthly Repayments

Use a car finance calculator to know if you can afford a specific car. This financing car calculator is easy to use. 

You need to input a few details to determine how much you can borrow and your car loan repayments.

• How much do you want to borrow? (in $)

• Loan term (in Years) 

• Repayment frequency (Years, Monthly, Fortnightly, and Weekly)

• Interest rate

Step 6: Apply For A Car Loan

Submit the required documents with the completed and signed car loan application. The application is checked for your eligibility to receive a car loan. The process will involve the following steps:

• You will fill out and submit an online car loan application form 

• The credit officer reviews your application

• The dealership will verify the authenticity of the documents to decide whether you meet their criteria 

• If they agree to grant you a car loan, you will need to sign a loan acceptance proposal 

• Your approved loan comes as a cheque or directly through the dealer you are purchasing the car from  

4. What Is Dealership Financing?

Car dealers offer financing options to people who wish to take out a loan to buy a car. The loan application process is quite similar to that of other loan lenders.

The loan process starts with reviewing credit scores, payslips, and savings and discussing with the applicant the capacity to pay the monthly instalments. The dealership takes care of all loan aspects, including contacting the preferred bank to arrange a car loan. 

5. Why Should You Finance A Car Through A Dealership?

Are you looking for the best place to finance a car? Consider financing your vehicle through a dealership for its many benefits over other finance options:

• Ease: There is no need to fill out a lengthy loan application at a financial institution such as a credit union or bank. If your loan application gets declined, you need to start the entire loan application process again. On the other hand, the dealership takes care of the whole loan application process, making the process simpler and less demanding.

• Low-Interest Rate: Dealership loans come with more liberal loan terms and lower vehicle finance rates than other financing sources. Such low-rate loans can save you a substantial amount of money over time.

• Lower Monthly Payments: Many dealerships offer a "balloon payment" facility that enables you to keep your monthly costs down during the financing term. Here the borrower pays a lump sum balloon payment after the loan period ends.

• Flexible Deals: Choosing to finance your car via the dealership enables you to negotiate loan terms and get plentiful financing offers to suit your requirements.

• Speedy Execution: Dealership financing is faster than financing your vehicle through a personal lender, credit union, or bank. In most cases, you can buy a car, complete the loan application formalities, and drive away with your new car in one visit.

6. What Is Salary Sacrifice To Finance A Car?

'Salary sacrificing' a car is a loan contract between you, the finance company, and your employer.

In this financing option, you ask your employer if he is ready to use your pre-tax salary to make loan repayments on a car. If the employer agrees, you can take out a loan with a finance company.

There can be a few disadvantages to this type of loan. You could owe the residual value when terminating the lease and incur higher admin fees and interest rates, including being accountable for the car if you switch or lose the job.

7. How To Finance and Buy A Car Interstate?

Buying a car from different states in Australia is the same process for all states. There is no difference. 

However, you need to pay additional costs and fees, including car transfer costs, stamp duty charges, title, and registration fees.

8. What Is The Best Place To Finance A Car?

Here are some of the best lenders to get a car loan in Australia is:

Loans.com.au

• No ongoing or monthly fees

• No discharge fees

• No early exit penalty

• Early payout facility

• Flexible options for loan repayment, such as weekly, monthly, and fortnightly 

• Quick approval in just 24 hours

• Balloon repayment facility

• Available to buy new and used vehicles from car dealers 

• Available in a loan term of 3, 4, or 5 years 

• Loan approval limit: $5,000 to $100,000 

• Choose between a variable and a low fixed rate

OMM (Our Money Market)

• Low-Interest Rates

• No Hidden charges

• No monthly account-keeping fees

• No exit charges 

• No early repayment charges

• Flexible and Simple

• Offer loans between 1 to 7 years

• Available loan repayment options as weekly, monthly, or fortnightly

• Fast paperless application 

• 100% online application 

IMB bank

• No ongoing fees

• No early exit penalty

• Apply online

NRMA

• Quick application process 

• No monthly fees

• Low fixed interest rates 

• Loan term of up to 7 years

9. What Things To Consider Before Purchasing A Car?

• Motor vehicles are depreciating assets whose value reduces with time. The first rule is to avoid using debt to purchase such assets. Using finance is the most common way among Australians to buy vehicles. 

• Don't get misled by marketing tricks such as "0%" or "1%" interest deals, as you may end up paying a higher price for your car overall. 

• Pre-approval can enhance your negotiating power.

• Buying a new car is more expensive. However, it will get you better interest rates from lenders due to its value, public interest, and fewer risks.

• Have a bigger upfront deposit to reduce your repayments and enhance your chances of low-interest-rate loan approvals.

• Check your credit history and understand your financial position before you approach lenders. Ensure you fix any defaults in your credit history to increase your chances of getting a loan approved.

10. What Factors Make A Good Car Loan?

Here are the elements that differentiate a good car loan from a bad one:

• A low-interest rate

• No or Negligible fees (lower comparison rate)

• Availability of additional features

• Pre-approval option

• Flexibility to make advance loan repayments 

• Flexibility to shift between weekly, monthly, and fortnightly repayments

• Balloon payment options

• Facility to redraw loan 

• Ongoing support 

Go for something other than the dealership's first financing deal. Instead, check and compare different options to get a good deal.

11. What Are Low Documentation Car Loans?

Low-documentation car loans are for applicants without the necessary documents to apply for one. Self-employed people come under this category as they can't show proof of salary.

Proof of business ownership and good credit history is enough to approve a low-documentation car loan. It is important to note that this type of loan carries a higher interest rate than a standard car loan.

12. What Is The General Duration Of A Car Loan?

The duration of a car loan (term) is the time you have to pay off the car loan. Car loans are available in varying terms. 

However, most reputable lenders allow terms between one year and seven years, with ten years as the maximum.

13. Ways To Get A Car Loan At A Low-Interest?

A slight interest rate change can lead to considerable savings in the long term. People should be particular about the interest rate when applying for a car loan. 

We have listed a few ways how you can show a car loan lender that you are a reliable borrower to offer you a lower interest rate:

• Maintain a clean credit history 

• Choose a secured car loan over an unsecured loan

• Use a guarantor 

• Have a steady flow of income

• Borrow less

• Purchase an Eco-friendly car or a Used car

14. What Factors Impact Car Loan Repayments?

Loan size, Loan term, and Interest rate are the key factors impacting your car loan repayments. 

A car loan repayment calculator is a helpful tool to know how much your loan would cost you based on these three variables.

15. What Fees Do You Incur When Applying For A Car Loan?

Knowing the fees when taking out a car loan will help you find the most affordable and suitable loan. Some of these costs include:

• Application fee

• Monthly service fees

• Early repayment fee

• Late repayment fees

16. Does A Car Loan Enhance your Credit Score?

Obtaining a car loan and paying it back on time is recorded as positive behaviour in the credit report. It improves your overall score.

17. What Is A Green Car Loan?

The government is encouraging people to buy environmentally friendly cars. 

The government offers green car loans at lower interest rates to attract people to buy eco-friendly vehicles.

18. How To Finance A Car With Bad Credit?

Bad credit car loans are ideal for those unable to finance a car due to low credit scores, credit defaults, poor credit history, bankruptcy, or short-term employment.

Rapid Finance is a car loan lending firm with over 19 Years of experience helping countless Australians with lousy credit finds the right loan.

Their expert team works to assess your financial situation and reveal all available finance options. Through their comprehensive assessment, they find the most suitable finance solution that matches the goals and circumstances of a loan applicant. 

Due to the higher risk profile of the applicant, the loan will have a much higher interest rate. Some of their service features are:

• Quick application and approval

• Finance for both new and used cars

• Customized car loan solutions

• Finance private or dealer cars

19. How To Finance A Car On Centrelink?

To be eligible for any loan product, you need to have a regular flow of income. Some lenders consider Centrelink benefits or payments as income to approve a secured car loan.

Here are the eligibility criteria to get a car loan on Centrelink:

• You must be 18 years or above

• You must hold Australian citizenship or be a permanent resident of Australia

• You use internet banking 

• You have been receiving a regular income in your bank account for the past 90days

• No more than two payday loans in the last three months

• No finance defaults in the previous six months

Centrelink customers can obtain car finance for up to $10,000. To approve such large loans, lenders generally keep the car as collateral to protect them from the borrower defaulting on the car loan.

Before you apply for a car loan with Centrelink payments, you need to decide on a realistic budget and the total repaying capacity per month. A car loan calculator can help you with an estimated amount you can pay.

If you have difficulties getting a car loan approved on Centrelink, having a guarantor (a person with good credit history and financial standing) can improve your chances of securing a loan.

20. Steps To Finance A Car Using Centrelink Payments

• Form a realistic budget. Decide what you can afford to pay every month after paying all monthly expenses. Consider a few more things like the loan amount, interest rate, loan terms, and repayment period.

• Consult with a broker who can do all the leg work on your behalf to get the loan approved

• Find a guarantor (trusted friend or family member) who takes the loan repayment responsibility if you can not pay the loan back for any reason. It protects the loan lender against risk and improves your chances of loan approval.

• Gather your loan documents and financial statements and make an application

21. Conclusion

Before applying for a car loan to finance a car, you need to consider many things. Being well-researched and organized makes you more confident. It puts you in a great position to negotiate and find the best deal.

In addition, maintaining an excellent financial standing, credit history, and low debts will improve your loan approval chances and qualify you for more competitive interest rates.

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