What is a car loan?
A car loan is a loan taken out for the purpose of buying a motor vehicle such as a car, Ute, 4WD, motorbike, or other road vehicle. A car loan can also be called a vehicle loan. If you don’t have enough in savings to afford to buy a car but you can afford to repay a loan in monthly installments, you might consider using a car loan to finance your new wheels.
A car loan is a common type of personal loan. Personal loans as a category cover a broad range of loans (e.g. debt consolidation, home improvement, study costs, weddings). We compare personal loans separately on our website.
Types of car loans
There are two main types of car loans:
- New car loans: 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. Typically, a new car loan will be secured by the value of the car. New cars are generally worth more than older models, so you might be able to negotiate a competitive interest rate.
- Used car loans: Available for buying cars that are too old to qualify for a new car loan. Again, a used car loan is usually secured by the value of the car. If a car is more than 5 or 6 years old, it might be too old to qualify for a used car loan, and you will have to apply for an unsecured car loan (an unsecured personal loan) instead which can attract a higher interest rate.
Who offers car loans?
Car loans may be offered by financial institutions as a stand-alone car loan, a personal loan, or via the redraw facility or line of credit on a home loan. You can also go to peer-to-peer (P2P) lenders and car dealers.
Choosing the right car loan for you
If you want a car loan that helps YOU, not just your bank, you need to set up a game plan before you apply. The majority of Australians – 59% of people surveyed by CANSTAR Blue in 2016 – say they are more likely to take to financial products such as loans with the institution they usually bank with. But you should always compare car loans to find the best one for your personal situation. Compare car loans with CANSTAR today!