A vehicle is essential for most Australian households, whether you’re a first-time driver, upgrading for a growing family, or need something reliable for work. But few of us have the cash on hand to buy outright.
A vehicle loan is a type of personal loan for buying a new or used car, when your savings won’t quite cover it. You make regular repayments over a fixed term toward the amount borrowed, plus interest, which accrues from the day you take out the loan.
Shopping around properly can save you thousands in interest and fees over the life of the loan. Most vehicle loans run between one and seven years.
Types of vehicle loans
Secured & unsecured vehicle loans
Most vehicle loans are secured against the car itself. If repayments aren’t kept up, the lender can repossess and sell the vehicle. Unsecured loans don’t require this, but carry higher rates and lower borrowing limits, and are mainly used for older or used vehicles.
Fixed or variable interest rate
A fixed rate keeps your repayments the same for the loan term, which dealerships commonly offer. A variable rate can rise or fall with the market, changing your repayments accordingly.
Balloon payment
Repayments start smaller, with a larger lump sum (often around 25% of the loan) due at the end of the term.
Chattel mortgage
A vehicle finance option specifically for business use, where you own the vehicle from the outset.
Operating lease
Closer to a long-term rental arrangement, where a company leases a vehicle for an extended period without owning it.
Commercial hire purchase
A finance company buys the vehicle on your behalf, and you make regular rental-style payments. After a set number of payments, ownership can transfer to you.
Vehicle lease
Similar to a commercial hire purchase, but with more flexibility. You rent for a set period, then choose to return or buy the vehicle at the end.
Novated lease
A three-way lease arrangement, typically via your employer, who leases the vehicle from a finance company on your behalf.
New vehicle loans
For vehicles under a certain age, often less than two years old.
Used vehicle loans
For vehicles over a certain age, often more than two years old, sometimes with different rate or term conditions.
Green vehicle loans
For electric, hybrid, or fuel-efficient vehicles, sometimes with a discounted rate from lenders supporting lower-emission choices.
Comparing vehicle loans
Compare your options before you meet the seller, so you know what you can spend and what your repayments will look like. Key things to check:
| Comparison rate | A single figure combining the interest rate and fees, useful for comparing like-for-like loan amounts and terms. |
| Interest rate | The rate charged on the amount borrowed. |
| Application fee | The upfront fee charged when you apply. |
| Other fees | Monthly service fees, missed payment fees, and any other charges detailed in the terms and conditions. |
| Extra repayments | Whether you can make extra repayments without penalty. |
| Loan term | Shorter terms often mean lower rates but higher repayments; longer terms mean lower repayments but more interest overall. |
| Loan conditions | Whether the loan covers new or used vehicles, and any age limits that apply. |
Budget for the full cost of ownership
When working out what you can afford, factor in the other costs of owning a vehicle, not just the loan repayments. Even if you’ve owned a car before, running costs vary between vehicles. Consider:
- Stamp duty
- Registration
- Vehicle insurance
- Fuel costs
- Regular servicing, maintenance, and repairs
- Road tolls
Some lenders can roll these costs into your loan. Where possible, it’s usually cheaper to pay them upfront, since a smaller loan means less interest overall.
What you’ll need to apply
Requirements vary slightly by lender, but generally include:
- Proof of age, identity, and residence
- Proof of income and expenses
- Details of assets and liabilities
- Proof of savings
- A good to excellent credit history
- Details of the vehicle and its insurance