Car Loans
Owning a car nowadays is more necessary than a trivial lifestyle choice, especially in Australia, where you’d need one for daily commutes. Stats notes that the average distance traveled by a passenger vehicle is over 12,000 kilometers per year!
Buyers may differ in their preferences – some aspire for a ‘dream’ car while others simply need a reliable workhorse – but what is valid for all is that car financing will be an essential part of acquiring a vehicle.
In this guide, we explore everything you need to know about car loans, where to obtain this financing, what eligibility criteria are, and the top considerations when choosing a car loan.
Car Loan Stats
Car sales have become vigorous again once the plummeting numbers from the pandemic have concluded. In 2021, over a million new cars will been purchased by Australians. Car loans figure in most of these purchases, as about 14% or 2.7 million people holding a car loan as of March 2021.
How much, on average, are car loans? The Australian Bureau of Statistics suggests that new vehicle lending is $1.2 billion, and other studies show that the average car loan amount is about $31,738.40. Most people (70%) prefer to take out a car loan for a used car than a brand-new unit (30%).
Gen Z is the age group most likely to have this financing in terms of managing car loans, with 26% paying off their car. Millennials follow closely, with 25% managing car loans. Only 2% of boomers have existing installment plans for their vehicles.
Location-wise, residents in New South Wales have the most significant number of car loans (18%), followed by Queensland and Western Australia residents (16%). The least number of vehicle financing is in South Australia, where only 11% or 1 in 10 residents currently have a car loan.
Getting a car loan may appear straightforward, but it still involves a bulk of paperwork that could confuse first-time borrowers.
What’s more, there are certain expenses beyond interest rates that can be hard to weigh without an expert’s help.
Who is eligible for a car loan?
Here is a checklist of information and eligibility requirements you need for a car loan application:
- Identification (IDs, passport, Medicare card)
- Income (tax returns, payslips, employment information)
- Assets and liabilities (credit card, existing properties or assets, ongoing expenses)
- Vehicle details (make, model, year, identification number, registration, purchase price)
Residents of Australia older than 18 years old can apply for this financing. International students with study visas may be unlikely to secure a car loan. And regarding income, lenders won’t approve applicants whose primary source of income is Youth Allowance, Austudy, or Jobseeker. It’s best to check with the lender to be certain of their specific requirements.
What are the types of car loans available?
These car loan types apply for petrol or electric vehicles: new, used (those that are less than 5 years old), and electric vehicles:
Secured car loans – Secured car loans require a collateral, which, in this case, is the car you are purchasing. If you default on the repayments, the lender can repossess the vehicle to recoup losses. Secured car loans often come with lower interest rates, which would then result in overall lower costs. It’s best for clients who are willing to use the vehicle as a collateral.
Unsecured car loans – Unsecured car loans will not require collateral or security for the loan. Because the lender has more risk, they will command higher rates compared to secured loans. Clients who may not want to risk their car as collateral or those who prefer older vehicles to brand-new ones.
Fixed-rate car loans – Fixed-rate car loans lets you lock in an interest rate for the duration of the loan. Interest rate that’s constant is protected from rising rates in the market, however, if the market lowers the rates, your loan’s interest rate remains unchanged. This car loan is suitable for clients who prefer certainty.
Variable-rate car loans – Variable-rate car loans have interest rates that can change over the life of the loan, according to market rate movements. Variable rate car loans can be quite flexible, as you have the option to make early repayments without penalties. Clients who are comfortable with interest rate fluctuations will benefit from potential long-term savings.
You’d also want to decide if you want a new car, a used car, or an older model (more than 5 years old). New car loans will have lower interest rates than those for used cars, but the value of a new car is much higher, which means it may take you longer to repay the loan.
A used car loan may have lower costs, but there will be certain restrictions on what age and condition of the used car you can finance. Also, an older vehicle tends to have higher interest rates.
Where can I apply for a car loan?
Different lenders offer car loan products. Banks, credit unions, P2P lenders, and most car dealerships can offer a loan to all eligible borrowers. However, while convenient, car dealerships are notorious for jacking up the price of the car. This way, they can bring much lower interest rates in their offer. But it might cost you more overall.
Shop around first before choosing a financing option. A car loan broker service can bring a lot more in-depth info on lender offers to make your choice easier. If you do decide to work with the dealership, be sure to agree on the price of the car before negotiating the car loan rate and terms.
How much can I borrow?
The amount of car loan largely depends on several factors, including which lender offers the loan, what is your current income, assets and liabilities, credit history, as well as the loan type you apply for. Lenders usually offer secured loans from $5,000 to $80,000, but the rates would vary depending on the car loan product you consider.
You can use our loan calculator to work out what the minimum and maximum loan amounts would be based on your finances.
What do costs per state look like?
Registration costs will also vary not only based on car type, but on which state you are in. For instance, Queensland has the largest add-on fees of all the states apart from standard fees on the registration, car plate, and traffic improvement. QLD car owners’ annual cost is around $713.
Meanwhile, Western Australia and New South Wales affix registration fees according to the vehicle’s weight; Tasmania, like Queensland, charges registration based on cylinders, while Northern Territory calculates fees based on engine size. South Australia allows a partial-zone based system, where the registration fee depends on your location.
Victoria and Australian Capital Territory have the simplest registration charging process in that they charge flat fees. ACT has a flat fee variable only by the CTP provider, while VIC charges a flat rate for all car owners regardless of their residential zone.
What are the additional costs in a car loan?
Owning a vehicle makes your day-to-day life easier, but it’s important to remember that having a car means extra costs. Aside from the car loan, there are necessary expenses to cover:
- Registration payments
- Car insurance
- Fuel costs
- Maintenance and servicing
- Car loan ongoing costs
You can budget your car-related expenses first to determine whether you can manage these costs. Going through your finances helps avoid the unfortunate situation of having to sell your vehicle because you cannot afford the additional costs.
Talk to us about car loans
Ultimately, choosing these car loan types depends on your financial situation, risk tolerance, and personal preferences. It’s essential to carefully consider your needs and consult with lenders to find the most suitable car loan for your circumstances.
Still got questions about your car loan application? Talk to one of our car financing brokers and start your journey in driving your dream car – We’re here to help if you’re a first time borrower, have a bad credit, or any other concern. Get started today.
