Finding the best-value $5,000 car loan
If you’re on the hunt for a car loan, the good news is that if you need to borrow $5,000 there are a wide range of banks and lenders that will have loans available in your price range.
When choosing between lenders you’ll want to compare a range of things from the interest rate, fees and features of the loan. You might find that if you are only borrowing $5,000 you might need to take out an unsecured car loan. Secured car loans are a popular choice but often can only be used when you are buying a new car or a car that is less than 3 years old. And if you've got your eye on a new car, you're often looking at a higher loan amount, so you might want to check out our page about $40,000 car loans.
In this guide, we’ll run through the key info you need to know and understand about borrowing money for a car, the key features of loan and what information you’ll need to apply and get approved.
Types of interest rates
Like personal loans, car loans come with either fixed or variable interest rates, but the ideal one for you will depend on your financial situation, as each comes with its own set of pros and cons.
If you don’t want any budget surprises, opting for a fixed rate car loan could be the better choice. With a fixed rate $5,000 car loan, you will know exactly how much interest you’ll be paying each month and over the entire loan period.
Keep in mind that with fixed interest rate loans, there is usually a fee if the total loan amount is repaid early and many providers also put caps on how much extra you can repay during the loan term. If you’re going with the fixed rate option, make sure you choose a term period that will allow you to pay off the loan comfortably. Just remember that the longer the loan term, the more interest you will pay.
If you’re budget is more flexible, you might want to consider a variable rate loan. These loans are often cheaper than their fixed rate counterparts and have more flexible features like free repayments and no early repayment fees which means you’ll have the freedom to clear your debt whenever you like.
Choosing the best loan term
When you’re taking out a car loan for $5,000, the term period - how long you choose to pay off the loan - may not seem like a big deal, but it can really influence how much you end up handing over to the lender.
A shorter loan period will usually cost you a lot less all up, as long as you can afford the monthly repayments (and make them on time).
Not convinced? Let’s break it down for you in an example.
Sophie has just gotten her full-time licence and now wants to buy a cheap car that will get her to work every morning. If she decides to take out a $5,000 loan over 3 years at an interest rate of 7%, Mozo’s car loan repayment calculator shows she would be paying $154 every month and $558 in total interest.
Meanwhile, if she takes out the same $5,000 car loan over 5 years, she could expect to make lower repayments of $99 every month but pay a considerably higher $940 in interest - that’s almost twice as much as the first scenario!
In other words, the faster you pay off your car loan, the less interest you’ll have to pay in the long run. However, the tradeoff is you’ll also have to factor in larger monthly repayments.
Ways to reduce loan repayments when borrowing $5,000
Taking advantage of some features offered by car loans could help to slim down your repayments. Here are a few to keep an eye on:
1. Low interest rate
If you’re looking to snatch up a good deal, lower interest rates can make a huge difference.
Let’s take a scenario where Jim is a university student looking to buy his first car and taking out a loan for $5,000. Using Mozo’s car loan comparison calculator, he compared the interest rates of two car loan products - one with a 10% interest rate, a family favourite, and the other with a 5% interest rate.
Say Jim goes with the first loan. He would be paying $1,374 in interest over a 5 year loan period, whereas if he ditched bank loyalty for a lower interest rate loan, he would save $731. That’s money going straight into his pocket, not the banks.
If you’ve already done some research on car loans, you may have also encountered the terms ‘secured’ and ‘unsecured’. Secured loans tend to come with the benefit of lower interest rates, as they require the borrower to use an asset - typically the car itself - as collateral. This gives your lender the security that if you can’t meet your repayments, they’ll be able to take back your car and resell it.
But keep in mind that if you’re looking to purchase a used car with a $5,000 loan, secured loan options may be limited, which makes sense given the higher risks associated with cars that have already driven quite a few kilometres on the road. For example, there are some secured rate car loans in our database that you'll need to borrow at least $20,000 to be eligible for.
2. Low or no fees
There are usually some upfront fees to pay when you take out a new car loan such as a loan establishment fee. You will pay these upfront at the start of the loan period. Other fees, like monthly fees will get added to your repayments and these can add up. This is why it is important when shopping around for a car loan to not only look at the headline interest rate. It’s important to look at the comparison rate as this rate includes fees and charges as well as interest which gives you a true indication of the cost of the loan.
3. No early loan repayments penalty
This really only applies if you’ve taken out a fixed rate loan. Some lenders will have an early repayment penalty if you pay out the loan earlier than the original loan agreement.
4. Extra repayments
One month, you may decide to eat out three times less than usual and spare an extra $160 in funds. Rather than keep this in your savings account, you can put those funds towards paying down the loan. Interest on your loan is calculated daily so the more you can put towards your loan each month, the less interest you’ll pay and the quicker you’ll be able to pay off the loan.
Written by: Katherine O’Chee, Mozo Money Writer
I need $5,000 for a motorbike, do I get a car loan?
Yes, you can apply for a car loan for any type of vehicle whether for a Vespa scooter, motorbike or small car.
If the loan amount is too small for a specific car loan, then it is likely that you would be able to take out a personal loan.
If I have bad credit, can I get a $5,000 car loan?
You may still be able to take out a $5,000 car loan with a bad credit rating but you can expect less options and higher interest rates than someone with a good rating.
Before applying for a car loan, it is a good idea to make sure that you are demonstrating good money habits to potential lenders. This means, making bill payments on time, checking your credit report to make sure that there are no mistakes or missing information that might affect your chances of getting approved and demonstrating that you can live within your means. Lenders want to be confident that if they are going to lend you money that you will pay back the funds on time and in full. Do a repayments road test prior to taking out the car loan to make sure that you will be able to meet the repayments easily.
See our guide here on how you can avoid making mistakes that could hurt your credit score further.
I have no credit history, can I still get a $5,000 car loan?
If you’re a younger driver just starting to find your way around personal finances, it’s possible you may have never had a credit card or personal loan before. As a result, you could run into the trouble of having a low credit score because you’ve never borrowed money before. But this shouldn’t exclude you from being approved for a loan.
Lenders will still want to see proof of income, proof of savings and they might even check things like your mobile phone bill or Afterpay account to see that you make repayments on time and in full.
Before taking out a $5,000 car loan you want to be confident that you can meet the repayments comfortably. And remember that you don’t just need to factor in the initial cost of the car, you’ll also need additional funds for things like petrol, car insurance and car maintenance.
Are there calculators to help me compare car loan repayments?
How do I apply for a $5,000 car loan?
Preparation first - gather all your documents including 100 points of ID, proof of income, and details of your assets and liabilities. You’ll need to have a clean credit record, although bad credit doesn’t necessarily close all your options.
You can apply for most $5,000 car loans online, and approval can take as little as a few hours or even minutes. Alternatively, you could visit a local branch of your chosen provider (if they have one) or call its customer service hotline.
Keen to apply today? Head back to the top of this page and click on the “go to site” button next to the $5,000 car loan of your choice. Those new wheels could be in your hands before you know it!