Compare used car loans

A used car loan is a type of personal loan that helps you buy a second-hand car over a certain age. When you take out a used car loan, the loan provider will lend you the money you need to cover the purchase price. You'll then repay the loan amount, plus interest and fees, in regular instalments over a predetermined period of time (the loan term). 

Used cars are typically cheaper than new cars, as vehicles generally depreciate in value. Whether you’re buying a pre-owned hatchback for the city, an SUV for a growing family, or a practical yet comfortable ute, a used car loan can help to keep your purchase affordable by spreading out the repayments over a preset term, often between one and five years.

A used car is simply a vehicle that you purchase second hand, meaning someone else owned and used it before you. Used car loans come with limits on the maximum age of the vehicle being purchased, typically from 10 to 15 years. Lenders impose these restrictions to help ensure the car you're purchasing will remain functional for the duration of the loan.

New car loans, on the other hand, may be available for purchases of vehicles of up to three or five years old. If the car you want to purchase exceeds a lender's vehicle age limit restrictions, you may need to opt for a used car loan instead.

Remember that if you are considering a longer-term loan, such as a five-year car loan, certain lenders may decline your application if the vehicle you intend to buy is already four years old. In this scenario, by the time the loan term concludes, the car would be nine years old, potentially falling outside the lender’s acceptable age.

There are a range of factors that make up a used car loan, which may better suit some borrowers than others. This is why it's crucial to take the time to carefully compare used car loans to ensure you're choosing the best option for your financial situation and budget.

Some of the most important factors to compare include:

Interest rates

Car loan interest rates determine how much you will pay in interest charges over the life of the loan. Carefully consider your financial situation and long-term goals when deciding between fixed and variable interest rates for a car loan. 

If you choose a fixed interest rate, your interest payments will remain the same throughout your loan term. Fixed rates can provide stability and predictability, which may better suit those who prefer a consistent monthly budget, or those concerned about potential rate hikes.

If you choose a variable rate, it may fluctuate over time in line with the market, or at the lender's discretion, raising or lowering your repayments, but it's more likely to come with features. As a result, fixed rates may help make budgeting simpler, but variable rate loans may offer more flexibility.

Helpful features

Some of the extra features that may be available on certain car loan products include:

• Extra repayments - You may be able to make additional repayments on top of your regular repayments to pay down your loan faster.
• Redraw facility - This allows you to withdraw any extra repayments you've made if you need to.
• Flexible repayment options - You may be able to choose between making weekly, fortnightly or monthly car loan repayments.
• Balloon payments - More commonly offered when buying a new car, a balloon payment lets you reduce your regular repayments by making a large lump sum payment at the end of your loan term.

Fees

The types of fees you may be charged tend to vary from one lender to the next, but may include:

• upfront fees like application fees
• ongoing fees like annual fees
• early repayment fees
• late payment fees
• redraw
• early exit fees

Secured vs unsecured loans

A secured loan is guaranteed against the value of an asset which is used as collateral if you default on your loan. If you don't keep up with your loan repayments, the lender can seize your collateral to make up their costs.

Car loans are one of the most common forms of secured personal loans, as the car itself can be used as security. Secured car loans generally have lower interest rates than unsecured car loans, as they are deemed less risky to lenders.

Many car loans are secured loans, with the vehicle used as collateral. Unsecured car loans are also available, but their interest rates and fees are more likely to be higher. 

Loan term

The loan term is how long you agree to pay back the loan plus interest. Car loan terms are typically between one to five years. For used cars, the car’s age might affect how long you can have to pay back.

Longer loan terms often mean lower monthly payments, but paying more interest overall. Shorter terms might have higher monthly payments, but you pay less interest during the whole loan. It's worthwhile calculating how much you would pay each month for different loan terms to see how they may suit your budget before actually applying for the loan.

Benefits and risks of used vehicles

Buying a used car comes with several considerations and expenses that are important to keep in mind when you're shopping around. 

You'll need to account for ongoing car ownership costs in your budget, such as:

• Registration
• Petrol
• Tolls
• Maintenance and repairs
• Insurance, including CPT insurance

There is also always the risk of having to repay a car loan even if the car stops working, or is written off. If your used car is no longer driveable, you will still need to meet your car loan repayments with the lender. It might be worth looking into insurance that could help cover you in this situation. It is essential to diligently compare car insurance options to ensure you find the most cost-effective and appropriate coverage for your vehicle.

You’ll also need to keep your used car’s depreciation rate and potential resale value in mind. All cars, new or used, experience depreciation, which is the decrease in value over time. While used cars typically depreciate more slowly than new ones, and some models retain value better than others, it's still a factor to consider when choosing your vehicle if you plan to sell the car in the future.

There is no one "best" car loan for every Australian, but you can use comparison tools to view options that may better suit your needs and budget. A competitive used car loan will typically offer a low interest rate, low fees, helpful features and flexible repayment terms tailored to your financial situation. You may also want to consider the lender as well as the loan, as a reputable lender that provides excellent customer service can be a game-changer. 

Luckily, RateCity has a number of comparison tools that may take the hassle out of the process, such as:

Comparison tables

RateCity's comparison tables allow you to compare apples with apples by easily viewing loan options that match your needs and goals. Simply use the filters to narrow down your search to the loan products that best suit your requirements. You'll then be shown a range of options side by side, so you can easily compare repayment costs, rates and features. 

Comparison rates

Car loans with low rates can sometimes come with high fees, so both are worth careful consideration. This is where comparison rates come in. Comparison rates combine the interest rate with the cost of many ongoing fees, and can help you get a better idea of the loan's total cost. A comparison rate is based on a $30,000 car loan on a five-year term. While a comparison rate may not cover every fee, it's one way to gauge how costly a loan truly is. If, for example, a car loan has a comparison rate 1-2% higher than its advertised rate, you may assume the loan comes with costly fees.

Car loan repayment calculator

RateCity's car loan repayment calculator can give you an estimate of how much your monthly repayments may cost based on your preferred borrow amount, interest rate and loan term. It can also estimate the loan's total cost and total interest payable. This is a helpful way to narrow down your shortlist of car loan options, based on how they will affect your household budget.

Real Time Ratings™

Real Time Ratings™ is a world-first rating system that ranks car loans based on your individual lending requirements. It gives each car loan a score out of five stars, based on loan costs and flexibility. Take note of the star rating of each car loan, and consider using this as a benchmark of what may be a competitive car loan, and what may not be. You may want to use the Real Time Ratings™ score as a way to further narrow down your car loan shortlist.