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What is a car loan?
A car loan is a type of personal loan used by consumers to purchase a vehicle. Depending on the lender, these loans can range anywhere from $5,000 to $15,000 with varying repayment terms.
Most Australians will, at one point in their life, look to purchase a new or used vehicle. While some of us shrewd savers may be able to afford a vehicle out of our savings, most Aussies will need to look to financing their purchase.
Monzi is here to explain how car loans in Australia work, as well as show how our lender-finder service may be able to help you.
How do car loans work?
In general, car loans is an agreement between three parties: the consumer (you in this case), the seller (car dealership, private sale etc.) and the credit provider (banks or other lenders).
In short, the credit provider pays the dealer on your behalf, and then you repay the lender over the coming months or years. Moreover, the car loan process looks a little something like this:
- You and your credit provider reach an agreement over the amount of money required for the purchase.
- You and the seller reach an agreement by signing a contract.
- The lender pays the seller.
- The consumer makes repayments over the agreed-upon term, generally a period of several years.
This is a very brief summary of how these loans work. We’ll explore all of this more in-depth below.
What are my car loan options in Australia?
It’s no secret that every Aussie is different. Moreover, our choices in vehicles reflect this. While some of us prefer a mud-splattered 4WD beast, others prefer a small hatchback for their inner-city commute. Luckily, we’re afforded the same variety when it comes to our financing options.
In short, there are a number of different options potentially available to you in Australia. For example, you may be able to finance a new or used vehicle through one of the following:
You may be able to finance your vehicle from the options provided by the dealerships themselves; examples include Toyota Finance, Nissan Finance etc.
Dealership finance may offer lower interest rates than traditional car finance on selected makes and models. Moreover, you may reduce your regular repayments by making a balloon payment at the end of your term. Dealership finance may be an attractive and convenient option for Aussie consumers as they do not have to shop around.
Despite the convenience, there are a number of risks associated with dealership finance. For example, the balloon payment at the end of your term may be large and difficult to save for. Moreover, this type of finance may only be available to consumers with good credit scores.
The other way to finance a vehicle is through a car loan. Depending on your situation, you could potentially get a loan from your bank or an alternative lending option.
With a vehicle loan, the consumer receives a lump sum payment which is used to purchase a vehicle. Moreover, the vehicle is often the security against the loan. This means if you default on your secured loan, you risk losing your car.
In general, a personal loan offers consumers more variety than dealership finance. Consumers can choose a product from a credit provider that suits their situation, needs and objectives.
Bear in mind, it may be difficult to secure approval for vehicle finance from your bank if you have poor credit. Luckily, the myriad of alternative lending options may be able to help.
Finally, note that personal loans for cars can vary greatly in their rates, terms and charges. For example, lenders offering bad credit car loans will likely charge higher rates than traditional loans. In other words, you are unlikely to get the best car loan rates if you have poor credit.
Is it worth financing a car?
It may be worth financing a vehicle if you do not have the savings on-hand to afford it otherwise. Moreover, financing your car purchase with a loan may be worth it if:
- your requirements and objectives are met; and
- you are able to reasonably afford your regular repayments.
Ultimately however, there are too many variables at play to provide a definitive answer.
In short, every Aussie consumer has their own needs, objectives and financial situation. Moreover, each lender may vary in their eligibility criteria and assessment processes. Therefore, it is essential you compare your options before making a decision.
How do I compare car loans?
When comparing your finance options, it’s important you understand what to compare. In short, there are a number of different points to consider that will impact how much you get out of your loan.
Consider the following before applying for loans.
Interest is what you repay on top of the loan principal. In general, this is expressed as an annual percentage rate (APR) of the loan principal. The lower your rate, the less you will pay in interest.
The interest rate is often the first point consumers consider when comparing lenders. Indeed, comparing loans based solely on the advertised rate may be tempting. After all, the interest will have a major impact in the total cost of your loan, right?
While this may be true, consumers should dig a little deeper than simply the advertised rate. In short, there may be other loan features that you find attractive.
Fees and charges
Most lenders charge fees on top of the principal and interest rate. These fees and charges may in the shape of:
- Upfront or establishment fees
- Ongoing fees, like monthly account-keeping fees
- Early exit fees
- Redraw fees.
Finally, consider the advertised car loan comparison rate. In short, the comparison rate takes into account most of the fees and charges associated with your loan. Therefore, you can get a truer reflection of the total cost of your loan.
Your loan term is the amount of time you’re given to repay your loan in full. Choosing a shorter or longer repayment term will have an impact on your loan.
For example, choosing a shorter repayment term means you’ll pay less in interest over the life of your loan but your regular repayments will be higher. Choose a longer term and the reverse is true: higher regular repayments but less repaid in overall interest.
Consider what is important to you before making a decision.
Car loans features
As we have established, loans can vary between different lenders. Moreover, they may vary in what features are associated with the loan.
In addition, some lenders may allow you to make additional repayments free of charge.
You may be able to get a loan from your bank. However, the big banking institutions may not always be your best option.
If you have poor credit or are in another less-than-perfect financial situation, an alternative lender may be an option worth considering. These lenders are, in general, more likely to offer bad credit loans.
Which bank is best for car loans?
Unfortunately, we cannot answer this question. After all, just as consumers vary in their needs and objectives, so too do banks with their eligibility criteria and assessment processes. As such, there is no definitive best bank for car loans.
It may be tempting to apply with the institution you currently bank with. However, there is no guarantee that you will be offered the best deal. Therefore, you will need to compare lenders against your needs and objectives, taking into account the:
- amount on offer
- eligibility criteria
- rates and fees
- other loan features.
What is a good interest rate for a car loan?
Interest on car loans typically ranges between 5% and 10% for secured loans and potentially up to 15% for unsecured loans. Obviously, however, a number of factors determine what interest rate you are offered.
For example, if you have poor credit history, lenders may perceive you to be a risky loanee. After all, your past history as a borrower doesn’t have a great track record of making repayments on time. As such, lenders will often charge higher interest to compensate for this added risk.
In addition, guaranteeing your loan with the car you purchase reduces the risk for the lender. This is because lenders can repossess the asset if you default on the loan. As such, secured loans carry more reasonable rates than unsecured loans.
What is a car loan comparison rate?
Put simply, a comparison rate can help you work out the true cost of your vehicle finance. This rate takes the loan’s interest, as well as most of the fees and charges into account and reduces it into a single figure.
Comparison rates are particularly useful when comparing loan products from different lenders.
Bear in mind, however, the comparison rate may not factor in all payable fees and charges. For example, the dishonour fee for missed payments may not be included in the comparison rate.
How can I get cheap car loans?
Ultimately, every consumer is looking to get the cheapest deal possible. Central to this is saving as much money as possible. Therefore, there are a few things you can do to find the best deal for your situation.
The first step to finding a great deal is to shop around. There are a heap of different online comparison sites that may make it easy to compare lenders in one place. Moreover, when shopping around, take the following into account:
- Aim to find the lowest rate that you’re eligible for – this will have a major impact on the total cost of your loan.
- Find a lender with low fees, as these may quickly snowball into unmanageable amounts.
- Consider whether the lender charges early exit fees.
Lenders take the information in your credit report into account when deciding whether or not to lend you money. In short, the better your credit history, the more likely you are to be offered low-rate loans.
As we discussed earlier, attaching security to your loan reduces the risk posed to the lenders. After all, lenders can repossess the asset used as security. Therefore, unsecured loans often carry higher interest than unsecured loans.
How do car loan calculators work?
In essence, a car loan calculator is a handy online tool that helps Aussie consumers figure out their potential repayments. Moreover, select in the amount you wish to borrow as well as your ideal interest rate and loan term and the calculator provides estimates of your weekly, fortnightly and monthly repayments.
Bear in mind however, these online calculators provide only estimates. The actual cost of your loan can vay, depending on the lenders policies and how you handle your repayments.
Can Monzi offer me a car loan?
While Monzi cannot offer you car finance ourselves, we may be able to match you with a potential provider through our lender-finder service.
In short, Monzi is one of the best lender-finder services in the game. Moreover, we’ve made it our mission to match Aussie consumers with a potential lender. Not only are we potentially able to match you with lenders offering personal loans from $2,100 to $15,000, we could also pair you with a lender offering car loans.
Before you apply, however, just confirm you meet our four eligibility criteria:
- At least 18 years of age
- Australian Citizen or Permanent Resident
- Have a personal contact number and email address
- Have a personal bank account with online banking active.
You’re free to apply if you meet the above list.
Can I apply if I have bad credit?
Yes! Monzi works with lenders potentially able to offer car loans for bad credit Australia. These loans may be an option if you have some any of the following on your credit report:
- Missed or late payments
- Multiple credit applications in a short space of time
- Multiple credit rejections in a short period of time
- Exceeding credit card limits
Bear in mind, however, a poor credit score reflects a poor borrowing track record. Therefore, lenders often charge higher rates on bad credit loans in order to compensate for this added risk.
Can I apply if I’m a pensioner?
Absolutely! If you’re looking for car loans for pensioners, Monzi can try to help.
If your days of work are behind you, the open road lays ahead. With car finance for pensioners, you can be out on the road sooner. Thinking of joining the ranks of the grey nomads? Check out our guide to caravans here.
Selling your car under finance
All good things must eventually come to an end and you may decide to sell the car. While selling your car is straightforward if you own it outright, things become complicated if you have finance hanging over your head.
In short, selling a car under finance is all about keeping the three major parties happy: you, your credit provider and the person buying your car.
Moreover, selling your financed car is difficult because with a traditional car loan, the loan is secured to the car. This is known as encumbrance. While the person who finances the car has full responsibility over the loan, the finance company is still able to repossess the vehicle from a new owner if it has been sold while there is still an outstanding balance on the loan.
Keep in mind, however, the finance company cannot make the new owner pay for the previous owner’s debt.
Finally, if you are a buyer, always check the Personal Property Securities Register to confirm whether or not the vehicle you’re thinking of purchasing is encumbered.
What is a novated lease?
A novated lease is another, albeit more complicated way to finance a car.
In short, a novated lease involves an arrangement made with your employer. Moreover, your employer covers the lease of the car, as well as certain running costs, through salary sacrifice and a combination of pre and post-tax deductions.
This means your weekly budget is not used to cover things like registration, insurance payments, miscellaneous running costs or roadside assistance. In addition, your car is seen as a company car for tax purposes. Therefore, you can claim benefits like GST discounts.
What are the pros and cons of a novated lease?
A novated lease, in certain situations, may be an alternative to taking out finance. If you are thinking about a novated lease, consider the following pros and cons.
- May not require upfront deposit. Repayments are made through salary sacrifice, making it easier to budget.
- May get a discounted price on the vehicle as well as on-going running costs.
- Finance amount generally based on the value of the vehicle minus GST.
- Applicable to both new and used cars.
- Can be used for both private and work-related purposes.
- Any leftover liability rests with the lessee. You may need to cover any gap between the residual value of the vehicle and the sale price.
- The lessee may be responsible for any damages to the vehicle.
- If you lose your job, your new employer will have to take over the lease. Alternatively, you will need to terminate your lease and may face extra charges.
- Ultimately, you do not own your leased car. Therefore, you cannot make any changes to the vehicle.
What else can Monzi find outside of car loans?
Outside of car loans, Monzi works with lenders offering personal loans. Moreover, our panel of lenders may be able to offer personal loans from $2,100 to $15,000.
Each of these loans may vary slightly. So, we’ll break them down here.
Small loans are valued between $2,100 and $2,000. These loans are unsecured, meaning you do not need to attach an asset as security against the loan. If you fail on your loan, the lender cannot repossess one of your assets.
Unsecured loans often carry higher interest rates than secured loans to make up for this added risk. Depending on the lender, your repayment terms may range anywhere up to 12 months.
Medium personal loans, on the other hand, are secured loans valued from $2,100 to $4,600. These loans are secured, meaning you will need to use one of your assets as security. Depending on the lender, repayment terms may be between 13 and 24 months.
Large personal loans are much like medium personal loans in their terms and security requirements; however, large loans are valued between $5,000 and $15,000.
Finally, the repayment terms may vary between lenders.