How to get a car loan

A car is an expensive purchase, and if you don't have the money to pay for your vehicle you'll consider getting a car loan. Whether you're buying a new or used vehicle through a private sale or from a dealership, there are a variety of car loans you can consider. Read through the steps below to find out what it takes to secure financing for your new car.

Step 1: Choose your vehicle or find pre-approval

Finding your vehicle is an important first step. Whether you're purchasing from a private sale or a dealership, have a look online so you get an understanding of what different vehicles cost and how much you'll need to borrow. This will make it easier comparing lenders and selecting your loan terms when you apply.

If you want to go shopping for your car after you've secured your finance, you have the option of a pre-approved car loan. This is offered by various lenders (detailed in the article linked below). If time is of the essence, select a lender that offers a quick approval.

Find out how long it will take your car loan to be approved

Step 2: Compare your loan options

Once you know what type of car you want to buy and how much you need to borrow, it's time to find a lender that can help you finance it. For example, if you're want to purchase a used car you can compare lenders here, or if you want to purchase a new vehicle you could perform a comparison here. You also have the option of using a car broker to find a lender for you based on your needs and financial situation.

When comparing it's important to look for a lender that will let you apply for your loan amount (check for set minimum and maximum amounts); that there are no restrictions that make your car ineligible for the loan; that the interest rate is competitive; and that you are aware of all the fees and features of the loan. Reading the review on finder.com.au and the lender's website before applying is very important.

Step 3: Calculate your loan repayments

Is your loan competitive? More simply, is the loan affordable on your budget? You can work this out by using a car loan repayment calculator. Input your loan term, loan amount and interest rate and some other details and you will see your ongoing repayments. You can adjust key details, such as the loan term, to see if you can make your loan terms more affordable. Other useful calculators for car loans can be found on this page.

Step 4: Submit your application

Applying for a car loan doesn't take long, but it can seem like a daunting process. An important aspect to remember is not to submit too many applications at once; every application you make will be listed on your credit file and making too many can damage your credit score.

Before you click "Go to Site" or start filling out any applications, make sure you meet all the minimum eligibility criteria set by the lender. This is listed on every finder.com.au review page and usually at the start of every online application. If you are uncertain about any of the criteria, it's best to contact the lender directly.

Once you have confirmed you meet the criteria, gather the information and documents and start the application. You'll generally need your personal, financial and employment details as well as details of the car you're purchasing. If you don't have all these details on hand you can generally save your application to complete it later.

Step 5: Receive your funds

You normally find out if you've been approved quite quickly, normally within a few minutes for conditional approval. Once you are fully approved you can receive your funds the next business day with some lenders. These funds are transferred differently depending on the lender, but generally it will be a direct transfer to your bank account. It may also be through a cheque or by paying a third-party directly. Check with the lender if you need the funds paid a certain way.

Frequently Asked Questions

• How much can I borrow for a car loan based on income?

  The amount you can borrow for a car loan in Australia depends on your income, credit score and existing debts. Lenders usually allow you to borrow up to a certain percentage of your income, often around 30%-40%, but it varies by lender.

• What is the minimum credit score for a car loan in Australia?

  The minimum credit score for a car loan in Australia varies by lender, but generally, a score of 650 or higher is preferred. However, some lenders may offer loans to those with lower scores, albeit with higher interest rates.

• Do you need a deposit for a car loan Australia?

  While it is not always required, having a deposit for a car loan in Australia can improve your chances of getting loan approval and reduce the loan amount and interest paid. Some lenders offer no-deposit car loans, but these often come with higher interest rates.

• What is the most tax effective way to buy a car in Australia?

  The most tax-effective way to buy a car in Australia may be through a novated lease if you are an employee, as it allows pre-tax salary deductions for the car payment. Another option is to buy the car under your business's name if you are self-employed, potentially allowing you to claim depreciation and operating costs.

Finder survey: Have Australians of different ages ever taken out a car loan?

Written by

Elizabeth Barry

Lead Editor

Elizabeth Barry was the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review. See full bio

Elizabeth's expertise

Elizabeth has written 211 Finder guides across topics including:

• Banking
• Personal finance
• Investing