Compare Used Car Loans and Rates

There can be considerable differences between a loan taken out to buy a new car and a loan for a used car. For example, you may be offered a different loan type, amount, interest rate or repayment conditions depending on if you are buying a new or used car.

New car loans

• Are typically reserved for vehicles which are around three years old or younger
• Are usually ‘secured’, where the car is held by the lender as ‘security’ or ‘collateral’ against the loan, so if you can’t repay the loan then the lender can repossess your car in lieu of that payment. The newer the car, the more confident a lender can be of recouping their loss if they sell the car
• More commonly have a lower interest rate than an unsecured loan, and you may be able to borrow more with this type of loan.

Used car loans

• Are typically reserved for cars which are older than three years, depending on the rules of the loan set by the lender
• Are usually unsecured loans, which means that the lender does not hold the car as ‘security’ against the loan. This means a lender cannot typically repossess the car if you default on the loan. However, they could use debt collection methods, and the default would probably be recorded on your credit history, which would damage your credit score, which in turn would impact your capacity to obtain other loans
• May offer a higher interest rate and stricter conditions, including not being able to borrow as much as other loans, because unsecured loans are considered a bigger risk than secured loans for lenders.

Read more: Secured vs unsecured personal loans

There are a number of different types of loans available to anyone wanting to finance the purchase of a used car. These include:

• Fixed rate used car loan: Some car loans offer a fixed rate of interest, meaning that the interest rate is locked in for all, or part of, the loan term.
• Variable rate used car loan: Some car loans offer a variable rate of interest, which means that the interest rate could go up or down, depending on the policy of the lender and the economic conditions of the time.
• Secured car loan: Where the lender holds the used car as ‘security’ or ‘collateral’, meaning that they give you the loan on the condition that if you fail to meet the loan conditions (such as paying it back on time), they can repossess the car and sell it to recoup the debt.
• Unsecured car loan: Often referred to as unsecured personal loans, these loans are described as unsecured as the lender does not hold your car as security on the loan. These types of loans are considered a higher risk for lenders, and so anyone applying for one may face a more rigorous application process. The lender will also most likely heavily rely on your credit history when considering your application. These loans will also often have a higher interest rate attached due to the higher risk to the lender.
• Car loan with ‘balloon payment’: Some loans come with a feature that allows you to lower your repayments over the life of the loan on the condition that you pay a large lump sum at the end of the loan term.

The car loan market is a competitive one, and rates change frequently, so it could pay dividends to shop around to find the best deal. This includes considering aspects such as the interest rate, term of the loan, fees, conditions and any other features of the loan. The lowest interest rate may not necessarily mean the best deal for your personal needs. Canstar’s comparison tool allows you to compare a wide range of car loan products available in Australia.

After you enter some general information (you do not have to provide any personal details such as an email address), it will generate a list of car loans on our database, including rates and features. Canstar’s expert research team also reviews and rates car loans, which could help when forming a shortlist of providers to consider. (Canstar may earn a referral fee via links in our tables, but this does not influence the Star Ratings featured in the tables.)

When comparing car loans, it could be a good idea to consider the:

• interest rate, including the advertised interest rate, the comparison rate, and if it’s a fixed or variable rate loan.
• conditions of the loan, such as if it’s a secured or unsecured loan, and any other terms and conditions listed in the lender’s documentation, such as the Product Disclosure Statement (PDS) and the Target Market Determination (TMD).
• loan term, which means how long you have to pay off the loan.
• fees, which could include application and/or documentation fees and ongoing fees (such as an annual or monthly account keeping fee).
• penalties, which could include fees for missed payments or early repayment fees, as well as what happens if you fall into arrears on your loan, such as repossession of the car.
• ease with which you can pay the loan and see the balance, such as if the lender has an app or online portal and if it is simple to operate.
• customer service, such as how you contact the lender if you have a problem with your loan.

As with any financial product, there are advantages and disadvantages to taking on a loan to buy a used car. These pros and cons will depend on your personal circumstances and needs when it comes to taking out the loan.

Possible advantages of a used car loan

• A car loan could help you to buy the car you want, topping up your savings towards buying the car or providing the full amount needed to cover the cost.
• To get a used car loan, you may not need to know the exact car you want to buy. This means you could shop around to find exactly what you want for the price you’d like to pay.
• Used cars generally cost less than new cars, which means you may be borrowing less to buy a used car than a new one.

Possible disadvantages of a used car loan

• A car loan is a debt which needs to fit into your budget over the long term. You’ll pay interest and fees on that loan, which means you will typically pay more back to the lender than what the car originally cost you. Cars generally also tend to depreciate, or lose value, over time. If you have to sell the car, it’s possible that the proceeds might not be enough to pay out the loan. In this scenario, you could be left with no car and a debt. It’s important to consider how this might impact your lifestyle.
• As with any loan, a used car loan is a type of debt that needs to be repaid, with interest, over a set period of time. Not following the rules of the loan, such as missing a payment, could mean you are charged penalties (such as a fee). Missing payments or defaulting on a loan could be recorded on your credit report, which could impact your credit score and make it harder for you to gain approval for a loan or other credit product, like a credit card, in the future.

You could use Canstar’s Car Loan Repayment Calculator to get an idea of what your potential repayments will cost you. However, your chosen lender should be able to supply you with a breakdown of costs before you sign up for the loan.

A car loan deposit is where you contribute a sum of money (perhaps from your savings) towards the cost of the car, and the lender supplies the rest in the form of a loan. This could reduce the total amount of the loan and the amount you’d have to pay in interest.

You can apply for a car loan a number of different ways. You could go directly to a lender, through a car loan broker, via the car dealer themselves or through a leasing company.

Typically you will need to prove your identity, such as with a birth certificate, passport and/or drivers licence; provide details about your bank accounts and financial status (such as your income and expenses; and details about the car you want to buy and where you want to buy it from. The lender will most likely check your credit history and verify personal details before deciding on whether or not to grant you the loan. You can check your credit score for free with Canstar or via the Canstar app.

Your credit history is one of the main things a lender will check as part of their reasonable inquiries into your financial situation, which they are obligated to do as part of Australia’s responsible lending laws. Your credit score shows lenders how trustworthy you are as a borrower, with some lenders offering better interest rates to borrowers with higher scores. You can check your credit score for free with Canstar or via the Canstar app.

If you find that your credit score is lower than you’d like, there are several steps you can take to improve your credit score, such as by paying off any outstanding debts (if you’re in the financial position to do so), paying your bills on time and checking your credit history for inaccuracies. It is also not advisable to frequently apply for loans, as being rejected for a loan or other credit product is negatively marked on your credit history.