Car loans give you the cash you need to purchase a vehicle. If you don’t have the funds readily available, car finance may be an option worth considering. Moreover, Monzi’s lender-finder service may be able to match you with a potential lender in no time. Not sure how car finance works? No stress – Monzi is here to explain everything.
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 $10,000 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 finance 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 finance 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.
In other words, dealerships may not be able to offer bad credit car finance. Get in contact with a dealer directly for more information.
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 consider applicants with one too many bad credit listings on their report.
Should I buy new or used?
It may be tempting to purchase a sparkly new car all for yourself. However, the benefits of buying a used car may far outweigh those of purchasing new.
For example, the sheer fact that a new car’s value significantly drops as soon as you drive out of the showroom floor. Therefore, consider benefits of each option before making a decision.
As mentioned above, there are a number of benefits and drawbacks associated with purchasing a new vehicle. Moreover, consumers should consider these points before making a decision.
- It’s brand-spanking-new and all yours.
- Most new cars come with at least 3 years warranty.
- Easily purchased directly from a dealership.
- You can choose the specific make and model.
- Modern vehicle with the latest features.
- May get cheaper car insurance.
- Rates may be cheaper for new car loans.
- The car’s value plummets as soon as you drive out the dealership.
- Poor return on investment if you decide to sell.
Buying a used car
The other option available to you is purchasing a used car. Weigh up the pros and cons before making a decision.
- They are far cheaper and may save you thousands. This is the main draw card of purchasing a used vehicle.
- If you buy a used vehicle that is still covered by warranty, you may be able to transfer the warranty over into your name.
- While buying a dodgy car is a major concern, reputable used car dealerships will check and perform the necessary repairs on a vehicle.
- Will likely break down sooner than a new car.
- Any savings you make on the cost price may be spent on repairs anyway.
- Less choice in terms of the make, colour or year.
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 finance.
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 finance 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 $300 to $10,000, 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.
How much can I apply for?
You can apply for car loans from $5,000 to $30,000 through Monzi’s lender-finder service. Moreover, repayment terms may range anywhere from 13 to 24 months.
Bear in mind, lenders may not be able to offer the amount you apply for on our site. Australian law requires all credit providers to lend money responsibly, so you will not be offered an amount you cannot reasonably afford.
How do I apply?
Applying on Monzi is straightforward and convenient. Moreover, there are simple instructions at every step of the online application.
For a more in-depth guide to applying with Monzi, consider the following:
Applying step 1
The first step is to head to our website. If you’re reading this then congratulations – you’re already here.
Next, use the loan slider at the top of the page to select the amount you would like to apply for as well as your ideal repayment terms. Click apply now once you’re happy with your selection.
Applying step 2
Here’s where we ask you a few questions. In short, we grab a few essential pieces of personal and financial information from you to provide to a potential lender. Lenders then use this information to gauge whether or not to extent you credit.
Please note, we ask you to enter your online banking information. Understandably, this may be confusing for some applicants. Monzi asks for your information so our smart system can pull read-only copies of your bank statements. We then pass this information on to potential lenders so they can get an understanding of your financial situation.
Applying step 3
You’re free to kick back once you complete the application. From here, Monzi’s lender-finder service aims to work its magic.
In short, we’ll try to match your application with a lender from within our network. If we successfully pair you, the lender will first assess your application before providing you with an outcome.
Lenders send through a digital loan contract upon approval.
How do I read my contract?
As we mentioned earlier, lenders send through a digital loan contact if you are approved. It is, however, essential you read through and understand your loan agreement before approving it. Pay particular attention to the following:
- Amount. Due to Australian lending law, lenders may not always be able to offer the amount you apply for on our site. Confirm you are happy with the amount being offered.
- Term. Are you provided enough time to settle your loan in full? Do you prefer a shorter or longer loan term?
- Rates & fees. Confirm you understand what rates and fees are associated with your loan before applying. For example, make sure you understand what happens if you fail on your secured loan.
- Security details. Confirm the details of the vehicle you use as security are correct.
What do I do if I’m unhappy with my contract?
If you do not understand, or are unhappy with anything in your contract, get in contact with your lender directly. They will be able to walk you through any and all questions you may have. Furthermore, lenders will be able to explain the conditions of your loan in more detail.
Do not approve any contract you do not understand. Consumers are under no obligation to accept the lender’s offer. If, however, you approve your contract and then decide to change your mind, you may find yourself in hot water.
Before approving your contact, consider the following steps:
- Read through your contract thoroughly before approving it. Ensure you understand what you are signing up to, as well as your obligations under the agreement.
- Get a copy of the agreement for your own records.
- Get in contact with the lender if you do not understand anything.
What kind of credit score do you need to buy a car?
The required credit score for a car loan depends on a number of factors. For example, traditional lenders like banks may be less-willing to offer loans to consumers with poor credit than other alternative options.
With Monzi’s lender-finder service, in particular, we may be able to match you with one of these alternative lending options. Moreover, these lenders consider the big picture. This means your credit score is only one piece of the puzzle.
For example, you may be approved for a loan despite your bad credit because of:
- Strong recent repayment history with other lenders.
- Consistent income and expenses.
As you can see, there is no minimum required credit score if you apply through Monzi. This, however, does not mean approval is guaranteed.
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.
Are there Centrelink car loans?
You may be eligible for car finance if you receive Centrelink. Specifically, lenders may be able to consider your Centrelink payments as income. Despite this, consumers on a low income should weigh up their options before applying for credit.
For example, you may be eligible for a StepUP loan. StepUP is an initiative of Good Shepherd Microfinance and NAB. Moreover, StepUP provides low interest loans to eligible low-income Australians. Moreover, you can use your StepUP loan to purchase a secondhand vehicle.
Ultimately, however, it may be difficult to secure approval if Centrelink benefits make up some or all of your regular income.
Can I apply Australia-wide?
Absolutely! Monzi’s lender-finder service is 100% online, meaning consumers from all corners of Australia are free to apply. In short, all you need is an internet connection and a device.
It doesn’t matter if you’re looking for car loans in Perth or in Far North Queensland, Monzi can try to help. Don’t believe us? Just check out a few examples of the loans past Monzi customers went on to be approved for:
|Car loans Australia||Amount||Location||Approved|
|Bad credit car finance||$13,000||Gold Coast, QLD||✓|
|Car finance for pensioners||$16,000||Gosford, NSW||✓|
How do I make repayments?
If you thought using our lender-finder service was easy, wait until you hear about repayments.
If you accept the loan agreement offered to you, the lender sets up a direct debit from your account. Therefore, your repayments are automatically deducted from your account. Finally, the direct debit stops once you settle your loan.
Therefore, all you need to focus on is making sure there’s enough money in your account each payment cycle. As a result, it may be worth considering lining up your repayment cycle with your normal pay day.
Finally, if you’re unable to afford an upcoming repayment, get in contact with your lender. If you give them enough notice, your lender may be able to cancel or reschedule your repayment for a contractual fee.
What happens if I can’t afford repayments any more?
Even the best-laid plans can come undone. Moreover, if your circumstances change drastically, you may find yourself unable to afford your regular repayments. This can often be the result of losing your job or being injured at work.
You may be eligible for financial hardship if your circumstances change. In short, a hardship adjustment gives you a reduced repayment amount, a break from your repayments, or both until you’re back on your feet.
Follow the steps to apply for hardship.
- Get in contact with your lender directly; let them know you wish to apply for hardship.
- Provide evidence of hardship. This could include things like:
- separation certificate from employer
- bank statements showing reduction of income
- medical certificate
- The lender assesses your claim and provides an outcome.
- Lenders may offer a payment plan if approved.
It is important you be upfront and honest with your lender. In short, struggling with repayments is nothing new and lenders have established avenues to deal with these situations.
Failing to speak up will result in multiple missed repayments. This will not only have a negative impact on your credit score, but you stand the risk of having your vehicle repossessed.
What is repossession?
Most car loans are secured against the vehicle you purchase. This vehicle acts as a guarantee you will repay your loan according to your contract. If, however, you fail to do so, lenders may repossess and sell your asset to cover their losses.
While repossession may seem intimidating, it is often the final resort for lenders. Moreover, there are a number of things you can do to avoid repossession.
When can the lender repossess my car?
While lenders are legally entitled to repossess your vehicle, consumers are also protected under Australian law. For example, your lender can only begin the repossession process if:
- you owe more than $10,000; or
- 25% of your loan (whichever is lower.
Moreover, lenders can only repossess your vehicle if:
- You are already behind on repayments.
- The lender has provided you with a 30 day notice to pay the overdue amount.
- You haven’t requested to postpone repossession or pay the overdue amount within this 30 day period.
Finally, note that credit providers cannot repossess your car if it’s inside your property; however, lenders can tow your car away if it’s parked on the street.
Is there any way to avoid repossession?
Yes! Obviously, the ideal way to avoid repossession is to make all your repayments on time. Obviously, however, this is not always a possibility for everyone.
Do not ignore a default notice if it is sent to you. If you are proactive, you may be able to avoid repossession altogether. Consider what course of action you wish to take before making a decision.
Pay the amount
You may be able to avoid repossession by paying the overdue amount or the full amount owing on the loan. Get in contact with your lender for more information.
Apply for hardship
You may be eligible for a hardship adjustment if you are willing to pay your loan, but don’t have the funds available. More specifically, you may be able to get:
- more time to pay
- a payment plan
- alternative options to help you settle the debt.
Finally, if you can’t reach an agreement, take your case to AFCA. You can find their details listed above.
Can I complain about the lender I matched with?
Yes, you can complain about a lender if you are unhappy with their service. Moreover, you can follow these simple steps:
- Contact the lender. Get in contact with your lender about your problem via phone or email. In many cases, you may not need to progress past this point.
- Make a formal complaint to the lender. Didn’t manage to solve the problem over phone or email? Send in a formal complaint in writing. Remember to keep a copy of the complaint letter.
- AFCA. You can get in contact with an independent complaints body (in this case AFCA) if you are still unhappy with the resolution.
You can get in contact with AFCA by visiting their website or by calling 1800 931 678.
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 other car-related expenses are there?
Unfortunately, once you purchase your vehicle, there are still a number of various expenses that need to be covered. Moreover, factor these expenses into account before applying for a car loan:
Your car must be registered before you’re able to drive it. Moreover, this registration must be renewed every year.
Vehicle registration falls under the jurisdiction of the various state governments. Head to your state government’s website for more information.
Whenever you purchase a new or used car you have to pay stamp duty. Like registration, stamp duty legislation differs between states. Therefore, what you will pay depends on which state you live in.
All cars must have compulsory third party insurance as minimum. Without CTP, you cannot keep your car on the road. Should you want additional cover, you can choose to get more third party or comprehensive cover.
Finally, the cost of your insurance depends on a number of factors, including your age and driving record.
Also factor in the on-going maintenance cost of your vehicle, like fuel, regular services and new sets of tyres.
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 $300 to $10,000.
Each of these loans may vary slightly. So, we’ll break them down here.
Small loans are valued between $300 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 $2,001 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 $10,000.
Finally, the repayment terms may vary between lenders.