What is a car loan?
A car loan is a type of personal loan used for buying a motor vehicle such as a car, ute, 4WD, motorbike, or other road vehicle. A car loan is helpful when you don’t have enough savings to afford the vehicle of your choice, but you can afford to repay a loan in monthly installments.
There are a few different types of car loans:
- New car loan: 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. A new car loan will usually be secured by the car, and the interest rate may be lower the more the car is worth.
- Used car loan: Available for buying cars that are up to 5 or 6 years old and do not qualify for a new car loan. A used car loan is usually secured by the value of the car.
- Unsecured car loan: Available for buying cars older than 5 or 6 years old that do not qualify for a used car loan. Unsecured car loans typically have higher interest rates than secured car loans.
Find out how car loans work and types of car loans, then compare
for your sweet ride using the comparison selector tool at the top of this page.
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Canstar Research Library – Car Loans
Some of the pros and cons of car loans are worth thinking about before deciding whether or not a
is right for your circumstances:
Benefits of a car loan:
- You can borrow an unlimited amount – as much as you need for the car, that is – with many lenders.
- You have 5 to 10 years to repay that amount.
- The amount of debt is fixed, so you can’t add to it with impulse purchases like you could if you used a credit card or a line of credit on your home loan.
- The average car loan interest rate is lower than the average rates for credit cards and personal loans (see our star ratings report for more detail).
- If you choose a fixed rate loan, you can know and budget for exactly how much you need to repay every month.
- By making your monthly repayments, your debt will eventually be fully paid off.
Disadvantages of a car loan:
- You can’t increase the amount of debt, so you have to make sure beforehand that you can afford to pay all other regular running costs of the car.
- You must make every one of your monthly repayments or you could lose the car (with a secured loan) or face court action (with an unsecured loan).
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How Canstar compares car loans
Canstar compares personal loans with our unique, sophisticated car loans star ratings methodology, which looks at both pricing and features. We present the results with our consumer-friendly star ratings, with a 5-star rating signifying that a
offers outstanding value to consumers.
Some of the features Canstar compares for car loans are:
- Lending terms
- Loan insurance
- Security and deposit requirements
- Repayment options
- Switching facilities
- Applications process
You can read the full car loans star ratings report for more information.
Compare car loans products yourself, based on your own requirements, using the comparison selector tool at the top of the page.
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Written by: TJ Ryan and Tim Smith
