Used Car Loans Australia

How do used car loans work?

Used car loans can be used to completely or partially cover the cost of a used car. Once you get a loan approved, the lender hands over the money and you can purchase the car. Then you start making monthly repayments, plus interest, until you pay off the loan.

Types of used car loans

There are a few types of finance when you're buying a secondhand car.

Secured car loans

With secured car finance, the vehicle you purchase is held as collateral against the used car loan. As a result, lenders will offer a more competitive interest rate – but you put your vehicle at risk if you can't make repayments.

Unsecured car loans

With unsecured car loans, you have more freedom on how you spend the money and no collateral is taken but as there is more risk for the lender, you will get a higher interest rate.

As there is no security, the lender is less concerned about the age or condition of the car. This is why unsecured loans are more common with older used cars. They are essentially a personal loan.

Dealership finance

You might find finance options through used car dealerships. They can offer some attractive used car finance rates with their chosen finance partner. However, these agreements often have hefty deposits and balloon payments, which require you to make a final payment of several thousand dollars. The repayments seem smaller and cheaper than they really are.

How old can a car be for a used car loan?

If you're buying a used car with a secured car loan, your lender has the right to sell your car to recover its costs if you can't repay the loan. This means the lender cares about the age of the car you're buying.

Many lenders only offered secured car loans for cars that are less than 7 years old. Some lenders accept cars up to 12 years old. The older the car, the higher your interest rate may be.

An unsecured car loan doesn't require the vehicle as security. So the age of the car is not an issue.

Maximum ages of used cars accepted by different lenders in Australia

Used car loan calculator

Fill in our used car loan calculator to see how much your used car loan could cost you. You'll need to enter:

• Loan term. How long you want the loan to be in years (between 1 and 7 years is the norm).
• Rates and fees. Put in the loan interest rate and any loan fees.

Then you can see see how much you'll end up paying.

How do I apply for a used car loan?

Once you've found a suitable used car loan, you can apply. Most lenders accept online applications. You will need:

• Your personal identification details.
• Evidence you can repay the loan (employment information, recent payslips).
• Details of the car you're buying (make, model, year, registration details).

What should I look for in used car loans?

• Interest rate. The higher the interest rate the more expensive your loan becomes. You always want a lower interest rate. But lenders charge different rates based on your car, your loan amount, and your credit score.
• Payment flexibility. Check whether lenders will allow you to pay at your own schedule, whether weekly, fortnightly or monthly.
• Loan term. If you choose a longer time to pay off the loan you'll have smaller monthly repayments. But you'll end up paying more interst over time. You need to find the right balance between affordability and long term cost.
• Fees. Many loans have application fees, which can vary from $200 to $800. Other loans may charge a monthly service fee. A loan with a $10 monthly service fee over 3 years will cost you $360. Some used car loans penalise you for repaying the loan early, while others don't charge early termination fees.
• Vehicle criteria. Make sure the lender is prepared to offer you a used car loan for the age and model of vehicle you're looking at.
• Pre-approval. Conditional pre-approval means you know how big a loan you can get. This puts you in a great place when haggling.
• Other features. A redraw facility, where you can claim back any money you've overpaid, might be useful.

Pros and cons of buying a used car

There are plenty of benefits to buying a used car over brand new:

• Value. You can get a used car for a cheaper price than a similar, brand-new vehicle. Let someone else pay for the first few years' depreciation (according to RACQ, it could be as much as $299.12 per week).
• Avoid salespeople. Buying a used car means avoiding professional salespeople using high-pressure selling strategies. Buying privately means you don't have to pay the extra that a dealer puts on top.
• No wait. There's often a long wait for new cars. Sometimes the dealer only has a display model and you have to wait weeks or months for your car to be built and shipped.
• More options. Buying second-hand means you have more options, and can possibly get a higher-end model than you would if buying brand new.
• Insurance. A lower value can mean lower car insurance costs.

There are some downsides to buying used:

• You need to do more research. Buying used, there's a chance you end up buying a car that's in worse shape than it looks. You really need to take a good look at the car, and spend time researching online. A test drive is also essential.
• Out of warranty. Depending on the age of the car you're buying, you might miss out on warranty protections.
• Paperwork. Certain used vehicles might need a roadworthiness certificate or safety inspection
• Tighter financing conditions. It is harder to get a used car loan compared to a loan on a new car. But this really depends on the age and condition of the vehicle. You may just need to shop around a bit more for a suitable car loan, or accept a slightly higher interest rate.

Used car buying money-saving tips

As well as shopping around for a great used car loan deal, you can save yourself even more money with these tips.

Consider less popular brands and models

The bestselling new cars will almost certainly become popular used car models. As a result, sellers can set their prices accordingly. Rather than getting fixated on one brand or model and trim, be open to rival models. You'll benefit in several ways. First, car manufacturers that are trying to compete with a sought-after and established marque might introduce longer warranties, better standard specifications and even drop prices. You could swoop in and take advantage of this by purchasing the rival brand on the used car market.

To save money, buy privately

Used car dealers are a middle party. Yes, they might offer attractive things like short-term warranties, but in reality, they can add a couple of grand onto a car's sticker price to cover their costs.

If you have a car enthusiast friend or family member, take them along to a private sale and you could end up with a much cheaper used car. If you don't know a car expert, consider paying for a pre-purchase inspection, which can help you avoid buying a lemon.

Haggle

Some people hate haggling, it makes them cringe. Most second-hand car dealers and private sellers will expect you to at least try. Some may even mark their car up a little, with the expectation that buyers will try to knock them down. Remember, this is a business transaction, so stay friendly and emotionally detached from the car.

Haggling doesn't have to become a verbal slanging match. You can be polite and negotiate – sometimes even being a bit cheeky might get you some money slashed off the deal. If you smile while you're doing it, that goes a long way. A common technique for bartering is to simply point out things you're not happy with, for example the tyres are heavily worn and need replacing, the windscreen is scratched or there are stone chips in the paint. If you are sincere and genuine, a lot of sellers will relent and meet you halfway. Spend some time researching the car model; find out if it needs any major scheduled work soon like timing chain/belt replacements or complete fluid renewals.

Phrase things in a positive way. Instead of saying "I want some money off", try asking "How much money are you willing to knock off?".

Equip yourself to haggle like a pro by looking up the market values of the car you're viewing. This can be done on sites like redbook.com.au. That should help you cut through the chancers who are trying to flip a car by buying it, giving it a valet and selling it on.

Never, ever let the seller know your budget. Also, remember that a lot of private sellers need to sell their car. They might have bought a new one and are currently paying for two vehicles!

If you're buying from a used car dealer, it helps to know the prices of similar or exact models on sale by their competitors. Then you can say "Company X is doing this car for this amount, can you match it?" Some people suggest even printing out the sales listing to show them.

The most powerful negotiation technique is always being prepared to walk away. Sometimes, you'll get a call later and suddenly the seller can meet your offer. If something's not right about the car or the seller, cut your losses and move onto the next prospective used car.

Above everything else, stay calm and never rush into things!

Consider a previous generation model

If the car you're after has recently received a facelift or been replaced with an updated model, the previous generation might drop in value. That means you can cash in by purchasing the older car.

Step down a trim level or two

It's tempting to want every creature comfort on offer in a used car, but if you're willing to step down a trim grade or two, you can save hundreds, if not thousands of dollars.

Be flexible on the odometer

You might see a used car that's covered thousands of kilometres more than a similarly aged vehicle. Don't discount the higher mileage model outright, because modern engines work better when up to full operating temperatures.

Around town driving, with short intermittent runs, the car doesn't always get up to temp. Plus, those urban roads are covered in potholes that really hammer the car's suspension and bushes.

If a car has covered 20,000km, but this was all around town, while another has done 50,000km (with a lot of motorway driving and excellent maintenance), then the higher clock reading car should be cheaper and potentially be in just as good (if not better) mechanical condition.

Which used car should I buy?

There are hundreds of different models on the used car market, so you might find things overwhelming.

Here's how to narrow the decision down.

Body style

The first and most important decision is, what kind of vehicle are you looking for? Each have their own merits and downsides.

Car body type	Pros	Cons
Light car	Great for new and young drivers Easy to handle and park Ideal for cities and towns Extremely economical	Limited rear passenger space Small boots Small engines have to work hard on motorways
Small car	Great for new and young drivers Still easy to park and drive Decent in towns and metro areas Very economical Hot hatch versions available Hybrids and electrics available Practical boot size for everyday living Sedan or hatch variants on offer Some luxury models on offer	Some models have cramped second row of seats Boot might not be big enough for family trips
Medium car	Offers a great all-round practicality Decent size for families of four Luxury models on offer Electric and hybrid models available Should be comfortable for four adults, five at a push Wagon models have impressive boots	Less economical than smaller vehicles Not great for large families
Large car	Plenty of room for up to five adults Many luxury models available Practical size for carrying, especially as a wagon Optimum comfort for long-distance driving	Less economical Market dominated by higher-end models Cumbersome around town
Sports car	Fun weekend toy, with the option for daily driving for a couple Soft-tops available Fast and exciting Prestigious brands Thrilling looks	Boots vary widely but aren't typically generous Seating for four is usually a big ask Can be low to ground, not great over speed humps Firm suspension can be jarring
Small SUV	Extremely popular, with plenty of choices Some hybrid models and a few electrics Practical all-rounders Higher up seating position Proportions can mean more interior room Economy has improved over the years Easier to get in than lower cars Still usable around the city	Not as much room as larger models Fuel economy might not be as good as a smaller car Handling might not be as sorted as cars
Medium SUV	Great all-rounder Electric and hybrids available Reasonable for towing Seven seater models available Good for families Prestige models available	Third row seats could be short on space Less economical Larger body might be more clunky in town
Large SUV	Electric models and hybrids available Good for towing trailers Some off-road capable models Larger interiors Seating for up to eight Luxury models available Lots of passenger comforts Some rugged, ute-based models Large boots	Less economical Cumbersome size for multi-storey and tight car parks
People mover	Seats for up to nine Sliding doors on some models make entry and exiting easier Higher up seating position Doubles up as a van Highly practical	Large, van-like proportions not great for street parking Smaller used market
Utility	Large payloads Great for business Hard-wearing Off-road capability High towing capacity Seats up to five Premium interior models available High seating position Practical	Beefy engine and boxy shape not great for fuel economy Cargo space needs securing Restricted interior storage Higher maintenance requirements
Van	Large, covered cargo space Decent payloads Solid towing capacity Ideal for tradies Crew cabs available with five seats Can be converted into a temporary or permanent camper Lots of bodywork for advertising	Panel van has limited visibility Economy not amazing, but not as bad as a full-size truck Often have workhorse spec interiors

Petrol, diesel, hybrid or electric?

Once you've nailed down the type of car you're considering, you need to think about what kind of fuel source you're looking for.

Petrol cars are plentiful, they're becoming more efficient and petrol is cheaper to buy at the pump. Petrol cars are ideal for those who live in towns and cities, where the diesel engine is not able to perform high operating temperature pollution-filter cleaning processes.

Diesel cars are more fuel-efficient overall, with generally higher levels of torque which make them hard-working. Sports and performance cars tend to be petrol-powered, and you have to (or just feel the need to) rev the engine hard, making for a sporty exhaust howl and exhilarating ride.

If you've never driven a diesel, you should at least try one. Many motorists say they'll never go back to petrol.

Hybrid models typically have a petrol engine, with an on-board system that either recoups lost energy or powers the vehicle over limited distances using electric motors.

Electric models are entirely powered by motors and batteries. The range of the cars is increasing at an astounding rate thanks to leaps in technology. You can charge an electric at public charging stations or at home using a standard plug. Electric cars are impressively torquey, making them great fun to zip around in.

Brand, warranty and features

Once you've nailed down the body and fuel type you want, you can start to think about the brands you like the look of. Many buyers make their decision based on how a car looks, which is important, but you should also ensure the vehicle has a decent warranty and features you like.

Reliability

This is a big one – the reliability of a car is hugely important. As you're buying a used model, you can do a deep dive online and find out all the common problems a prospective model suffers. There will also be user reviews and readability studies/surveys available, so you can make an educated choice.

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More questions about getting used a car loane

• What are the interest rates on used car loans?

  Interest rates on used car finance varies widely depending on the age and condition of your car, how much it costs, the length of the loan, and your own credit history.

  Used car loans rates range from around 5% all the way up to 20%. And it all depends on the factors outlined above.

• Which bank or lender has the best used car loans?

  There really is no single best used car loan because every borrower (and every car) is different. The best loan will always have a competitive rate and minimal fees, and suit the type of car you're buying.

  This means you need to compare multiple car loans to find a better deal. And while many smaller online lenders often have very low rates, it's worth looking at bigger banks too. The car loan market is quite competitive across the board.

• Should I buy a car that's under finance?

  We've written an entire guide covering the topic of whether to buy a car under finance (known as an encumbered car). Though there's nothing wrong with buying a second-hand car that's financed, you need to be extra cautious and make sure you do your due diligence before buying.

• Are used cars safe?

  You're probably familiar with the ANCAP crash testing and rating scheme in Australia. These star ratings are for new vehicles. For used cars, you'll want to refer to the Used Car Safety Ratings, or USCRs. These are published over at howsafeisyourcar.com.au. Bear in mind that the condition of the vehicle's bodywork and mechanical components plays a big part in its crash safety. Also, the level of corrosion is a key factor. Don't forget to check for any outstanding recalls on the vehicle make, model and build year.

• How do I inspect a used car?

  In short, very closely. Don't take the seller's word as gospel. Prove to yourself the car is in sound condition and working order. To help, we've created a used car buying guide checklist.

• Can I get a used car loan if I've previously declared bankruptcy?

  Some lenders are open to considering a person who has previously petitioned for bankruptcy. Check out our loans for bankrupts guide.

• Can I get a used car loan as a student?

  If you need to buy a car and you're a student, see if you're eligible by visiting our student car loans page.

• Can I get a used car loan if I'm self-employed?

  If you need to buy a car or commercial vehicle for your business, you'll want to check out low-doc car loans and business vehicle finance.