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Car Loans

Helpful Car Loans Information

What is a car loan?CANSTAR - Outstanding Value - Car Loan

A car loan is a type of personal loan used for buying a motor vehicle such as a car, ute, 4WD, motorbike, or other road vehicle. A car loan is helpful when you don’t have enough savings to afford the vehicle of your choice, but you can afford to repay a loan in monthly instalments.

There are a few different types of car loans:

  1. New car loan: Available for buying cars that are brand new, and some lenders will let you use a new car loan for a car that is 1, 2, or even 3 years old. A new car loan will usually be secured by the car, and the interest rate may be lower the more the car is worth.
  2. Used car loan: Available for buying cars that are up to 5 or 6 years old and do not qualify for a new car loan. A used car loan is usually secured by the value of the car.
  3. Unsecured car loan: Available for buying cars older than 5 or 6 years old that do not qualify for a used car loan. Unsecured car loans typically have higher interest rates than secured car loans.

Find out how car loans work and types of car loans, then compare car loans for your sweet ride using the comparison selector tool at the top of this page.

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Canstar Research Library - Car Loans

Some of the pros and cons of car loans are worth thinking about before deciding whether or not a car loan is right for your circumstances:

Benefits of a car loan:

  • You can borrow an unlimited amount – as much as you need for the car, that is – with many lenders.
  • You have 5 to 10 years to repay that amount.
  • The amount of debt is fixed, so you can’t add to it with impulse purchases like you could if you used a credit card or a line of credit on your home loan.
  • The average car loan interest rate is lower than the average rates for credit cards and personal loans (see our star ratings report for more detail).
  • If you choose a fixed rate loan, you can know and budget for exactly how much you need to repay every month.
  • By making your monthly repayments, your debt will eventually be fully paid off.

Disadvantages of a car loan:

  • You can’t increase the amount of debt, so you have to make sure beforehand that you can afford to pay all other regular running costs of the car.
  • You must make every one of your monthly repayments or you could lose the car (with a secured loan) or face court action (with an unsecured loan).

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How Canstar compares car loans

Canstar compares personal loans with our unique, sophisticated car loans star ratings methodology, which looks at both pricing and features. We present the results with our consumer-friendly star ratings, with a 5-star rating signifying that a car loan offers outstanding value to consumers.

Some of the features Canstar compares for car loans are:

  • Lending terms
  • Loan insurance
  • Security and deposit requirements
  • Repayment options
  • Switching facilities
  • Applications process

You can read the full car loans star ratings report for more information.

Compare car loans products yourself, based on your own requirements, using the comparison selector tool at the top of the page.

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Written by: TJ Ryan and Tim Smith

Car Loans Glossary Of Terms

Please note that these are a general explanation of the meaning of terms used in relation to car loans. Loan terms may use different wording and you should read the terms and conditions of the relevant loan to understand the requirements of that loan. You cannot rely on these terms to the part of any loan you may purchase. You should refer to the product disclosure statement (PDS).

  1. Balloon payments: A loan with an offset amount, where you pay less interest over the life of the loan but at the end of the loan term you have to pay that offset amount as a lump sum payment. Find out why and how to avoid balloon payments here.
  2. Car loan: A type of personal loan used to buy a car or other motor vehicle, and repaid with regular repayments. In this arrangement, the customer owns the car and is able to use the car from the day they take out the loan. Compare car loans using the comparison selector tool at the top of this page.
  3. Comparison rate:A rate that represents the total annual cost of the loan in a single figure, including the interest rate, payments, and most of the ongoing and upfront fees and charges. On the Canstar website, all comparison rates for car loans and personal loans are based on a $10,000 loan over 3 years.
  4. Credit rating or credit score:A numerical score that represents the credit-worthiness of a borrower, based on their history of borrowing and repaying past credit or loans, and is used by lenders when deciding whether or not to lend to the borrower, and what interest rates to charge on a loan. Find out how to check your credit score here.
  5. Default:When a cardholder fails to fulfil their obligation to make the minimum required payments on their loan. Defaults are a serious black mark on your credit report and negatively affect your credit rating.
  6. Equity:Where you have borrowed money to buy an asset, equity means the difference between the value of the asset and how much you still owe on it. This is known as a “residual claim to ownership”. For example, when an owner buys a car with a loan for $10,000 and has repaid $6,000 so far, the owner has equity of $4,000 on the car.
  7. Fixed rate:A loan that lets a borrower “lock in” a particular interest rate for a period of time (sometimes the whole loan term).
  8. Hire purchase: A loan where the customer hires a car from the lender for a fixed monthly repayment over a set period of time. In this arrangement, the customer is able to use the car while repaying it but they do not own the car until the hire purchase loan is fully repaid. There are many different ways to buy a car and a hire purchase is just one method.
  9. Novated lease agreement: An arrangement where an employer takes out a car loan over a car, and their employee buys that car via salary sacrificing the monthly repayments to their employer. In this arrangement, the employee is able to use the car while repaying it. Learn about novated lease agreements here.
  10. Ombudsman: If you have a dispute with your lender and haven’t been able to resolve it through the lender’s internal complaints resolution process, you can contact two free Ombudsman services to help you depending on what kind of lender gave you the loan. The Financial Ombudsman Service(FOS) helps people resolve disputes with their bank or financial institution about loans, credit, or banking. Anyone can call them on 1800 367 287. The Credit and Investments Ombudsman (CIO) handles complaints about non-bank lenders, credit unions, building societies, finance brokers, financial planners, lenders and debt collectors, credit licensees and credit representatives. Anyone can call them on 1800 138 422.
  11. Variable rate loan: A car loan with an interest rate that can go up and down at the lender’s decision.

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Car loan providers we research and rate

Below are some of the car loan providers we rate:

ANZ

Bankwest

Bendigo Bank

BOQ (Bank of Queensland)

Commonwealth Bank (CommBank)

CUA

Heritage Bank

HSBC

Liberty

NAB

Newcastle Permanent

NRMA

RACV

Suncorp

Westpac

Compare car loans using the comparison selector tool at the top of this page.

Compare Car Loans