How to choose a right term for your car loan
Key highlights
The length of your car loan’s term will affect its cost, both in month-to-month repayments and the total interest you’ll be charged on your vehicle. Choosing the right term for a car loan may help you get the most value for money, keeping in mind that other flexible options may be available to you.
What is an average car loan term in Australia?
Typical car loan terms in Australia last between 1 and 7 years, with some banks and other financiers offering car loan terms of up to 10 years. A short-term car loan is generally between 1-3 years, and a longer-term car loan is 3-5 years, with some car loans extending to 7 years and above.
Car loans with shorter or longer loan terms may have specific eligibility criteria for borrowers, and may better suit some borrowers than others, as everyone’s financial situation is different. Be sure to compare different car loan options before making an application.
Long versus short car loan terms
Choosing a car loan with a long loan term could help keep your monthly repayments more manageable. Because each repayment will consist of a smaller part of the loan principal, you can pay less per month, leaving more money available in your household budget to cover other household costs.
However, because interest is charged on each scheduled repayment, a longer car loan means you’ll likely pay more in total interest on your car over the long term. Even if your car loan has a low interest rate, this may not offer as much value for money overall.
A shorter loan term means that your car loan will cost you more from month to month, as the loan principal will be repaid in a smaller number of instalments. However, you’ll likely pay less interest in total over the loan term, so you’ll ultimately pay less in total for your car.
You can use a car loan repayment calculator to experiment with different car loan term lengths and interest rates, and how these can affect your repayments.
Depreciation and car loans
Many car loans are secured loans, where the car you purchase is used as collateral for the loan. If you default on your repayments, the lender will have the right to repossess and sell the car to get its money back.
However, this can be complicated by the fact that cars are depreciating assets, which lose their value with time and use. For example, as soon as you drive a new car out of a car yard, it will have lost around 10% of its starting value. And once a car has its fifth birthday and/or travels more than 100,000 kilometres, its value can drop significantly.
This means that some banks and other car loan providers may limit the term lengths they’ll offer on secured car loans for used cars. If a lender isn’t confident that the car will retain enough value to secure the loan for the full loan term, it may only offer a shorter loan term, or decline the car loan application altogether. Some lenders may only offer secured loans to purchase new cars, while others may set a maximum age limit on used cars you can purchase.
Alternatively, you could opt for an unsecured car loan, which doesn’t require collateral. That said, these loans may have higher interest rates, and may have stricter eligibility requirements to qualify, such as needing a good or excellent credit score. There may also be a longer approval time as the lender may need to look more closely at your finances so they can be confident you can comfortably repay the loan.
Can you change your car loan term?
Your car loan’s term length may not be set in stone. For example, depending on your lender, you may be able to make extra repayments onto your car loan to pay your car off sooner, which could potentially save you money in interest charges.
It’s also possible to refinance a car loan if your current deal no longer suits your needs. This could include switching to a car loan offering a lower interest rate, more useful feature and benefits, or a shorter or longer loan term. Just keep in mind that there may be fees to pay when switching car loans, and extending your car loan term could end up costing you more in total interest.
Compare car loans in Australia
6.24%
7.37%
$389
Australian Credit Licence 395219
Fees & charges apply
- Promoted
- $5k to $150k
- 3 to 7 years
- Variable Rate
- Secured
6.57%
7.19%
$392
Australian Credit Licence 488228
Fees & charges apply
- Promoted
- $5k to $100k
- 1 to 7 years
- Fixed Rate
- Secured
6.57%
7.19%
$392
Australian Credit Licence 488228
Fees & charges apply
- Promoted
- $5k to $100k
- 1 to 7 years
- Fixed Rate
- Secured
6.52%
up to 18%
6.95%
$392
Australian Credit Licence 364340
Fees & charges apply
- Promoted
- Via broker
- $10k to $250k
- 1 to 7 years
- Fixed Rate
6.09%
7.22%
$387
Australian Credit Licence 395219
Fees & charges apply
- Promoted
- $5k to $150k
- 3 to 7 years
- Variable Rate
- Secured
6.52%
up to 18%
6.95%
$392
Australian Credit Licence 364340
Fees & charges apply
- Promoted
- Via broker
- $10k to $250k
- 1 to 7 years
- Fixed Rate
7.39%
8.52%
$400
Australian Credit Licence 395219
Fees & charges apply
- Promoted
- $5k to $150k
- 3 to 7 years
- Variable Rate
- Secured
7.59%
8.72%
$402
Australian Credit Licence 395219
Fees & charges apply
- Promoted
- $5k to $150k
- 3 to 5 years
- Fixed Rate
- Secured
Product database updated 22 Jan, 2025
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Promoted car loans
New/Demo Car Loan
Real Time Rating™
- $5k to $150k
- 3 to 7 years
- Variable Rate
- Secured
Interest rate p.a.
6.24%
Comparison rate* p.a.
7.37%
Australian Credit Licence 395219
Fees & charges apply
New Car Loan - $5,000-$100,000
Real Time Rating™
- $5k to $100k
- 1 to 7 years
- Fixed Rate
- Secured
Interest rate p.a.
6.57%
Comparison rate* p.a.
7.19%
Australian Credit Licence 488228
Fees & charges apply
Used Car Loan - No vehicle age limit - $5,000-$100,000
Real Time Rating™
- $5k to $100k
- 1 to 7 years
- Fixed Rate
- Secured
Interest rate p.a.
6.57%
Comparison rate* p.a.
7.19%
Australian Credit Licence 488228
Fees & charges apply
New Car Loan
- Via broker
- $10k to $250k
- 1 to 7 years
- Fixed Rate
Interest rate p.a.
6.52%
up to 18%
Comparison rate* p.a.
6.95%
Australian Credit Licence 364340
Fees & charges apply
Product data updated on 22 Jan 2025
