Used car loans

Think of borrowing money to buy a used car similar to borrowing a cup of sugar from your neighbour. Out of social etiquette you return the favour with a baked cake. So when it comes to borrowing money, turn the cake into the interest rate that you’re charged, because you’re going to be repaying more than the price of the actual car in the long run. In the end it’s your way of saying: ‘thanks lender for letting me borrow a large amount of money at once.’

Confused? Say you borrow $20,000 to borrow money for a used car and the rate you secure is 5%. Then over the course of your loan of 3-5 years you could pay around about $4000 on top or more. That’s the cake. Want to read what else you need to know when it comes to borrowing money from a used car? Read on!

Comparing used car loans – what features to look for

Whether you decide to buy from a private dealer, an auction or a dealership, a loan for a used car is much the same across the board. There are however a bundle of features you need to consider before deciding on which car loan is best for you. Here’s what you need to compare: 

Loan amount

Using Mozo’s car loan comparison calculator is a great way to help you understand how much you can afford to borrow and repay. 

Length of term? 

Typically 5 years, but some people opt to pay it off faster with a 3 year loan period.

Rates: fixed or variable? 

Fixed allows you to budget better as the amount won’t change over the course of the term. 

Secure or unsecured? 

Often, the car you purchase will be used as security on the loan, so if you default on payments, the lender has the power to sell your car to recoup any debt owed. 

Monthly repayment, can you manage it? 

Don’t bite off more than you can chew! Use Mozo’s repayment calculator to compare rates and see if the monthly repayments is realistic for your day to day budget.

Application fee 

Most dealers and auction houses will charge a fee to shuffle papers on your behalf, and you’ll be thankful. If you’ve ever purchased a used car privately, you’ll already know how time consuming getting rego and insurance sorted can be. 


Can you use your loan amount for other things like consolidating debt or a home reno? It’s not commonplace to have the freedom to use the money you borrow for a used car for anything other than the used car. But if you want flexibility, do the legwork and see who will. Bear in mind, you may pay a premium rate for that freedom! 

How to manage repayments 

Budgeting for repayments of a car loan is no easy task, even if it’s for a used car. Chances are, if you're opting for a used car and not buying a new one because your budget is already tight. Or you just don't see the value of buying a new car when it will only devalue any way. 

In any case, budgeting your day-to-day expenses is as important as budgeting for your used car loan, so make it a priority. Yes, it’s just as important as making sure you have enough milk in the fridge, because if you don't have enough money after rent, mortgage and groceries to pay your loan, then you may lose you car altogether. Here are some suggestions on managing your car loan repayments: 

  1. 1. Extra payments- Do you have the flexibility to make extra repayments, and without penalty? Putting your tax return or work bonus amount toward you car loan can help you pay off your loan faster, which means saving $$ in the long run. 
  2. 2. Pay on time - Set up a direct deposit to pay your loan off so that you never miss the due date. It’s ideal to pay 3-5 business days before the due date in case there are any delays between bank communications. That way you’ll always avoid late fees.
  3. 3. Conscious spending - Don’t need a fifth pair of sneakers? Then don’t buy them. conscious spending is all about being mindful of where your money goes after it reaches your bank account. Ever wonder how quickly your pay seems to disappear? Any extra money left over could go into a term deposit to help you save or toward extra car loan repayments that could help you pay off your car sooner. 
  4. Try Mozo’s car loan repayments calculator to see how much your repayments will be. 

Traps to watch when buying a used car 

Buying a second-hand car is not as straightforward as you think. There’s a whole lot of things you need to be weary of so that you don’t end up with a very expensive lemon. Save your sour face for your neighbour’s homemade lemonade. Anyway, it’s our job to help you understand what you need to be aware of, so here is a list of thought-starters for you. Think of them as protocol before buying a used car: 

  • Is the vehicle roadworthy? 
  • Is the dealership trustworthy? 
  • Do you have the freedom to hire an independent mechanic to inspect car? 
  • If buying privately, does the name and address of the owner listed on the rego papers match their driver’s license? 
  • Is the pink slip valid at least 28 days? 
  • Is money still owed on the car? You need a PPSR (formerly REVS check). 
  • The shell of the car might be in good nick, but how many kilometers has it done compared to the age of the car? 
  • Has the odometer been tampered with? 
  • Are there noticeable bubbles in the paint or rust that you can see? 
  • Dents, scratches, other damage? 
  • Will it be inexpensive to fix or cost thousands on top of the buying price? 
  • Is the price of the car negotiable? 

Remember: follow your gut instinct. If it's too good to be true, then it probably is. Also, if you’re feeling uneasy about the purchase, then you need to step up and say that ‘you’ll think about it’. Don’t ever feel bullied, obliged or pity for the person selling their car whether you’re buying from a dealer or private seller. It’s not your position to purchase with emotions but rather with sense and logic. Try to always have someone with you to keep a balance on the buying process. 

Applying for a used car loan – what you need 

Some lenders want a little more information than what you would normally give for a regular car loan. For a used car, your lender may ask what the VIN number is in order to verify whether or not it is a stolen vehicle or if there is money still owed on it. 

Other items your lender may ask for may include the: 

  • registration plate 
  • motor number 
  • make, year, model

But this is just the start. The nitty gritty is in proving your identity, residence and income. Why? Because you can’t be an imposter who attempts to borrow a lot of money, make little or no repayments while running off with the goods. The world doesn't work like that! You need to verify your esitance and prove that you're a suitable candidate for borrowing money. It’s a trust thing! 

So be prepared to take ID items like: 

  • utility bills 
  • passport 
  • proof of age card 
  • driver’s license 
  • one to two year’s tax returns 
  • bank statements etc. 

If you’re not sure of what to bring, as the lender you’re making an enquiry with as each lender’s requirements will differ slightly.

Used car loan Tip 101

Research – is key. You really need to compare brands, to price, to age, to kilometres used to size and more. Start with an internet search of various dealerships online compared to private sales through portals like gumtree or carsales. 

Apart from the above important elements to think about, you need to work out if you will buy privately or through a dealership. The main difference is that a used car purchase done privately is not protected by Australian consumer law, so it is literally based on trust with a stranger. If you’re not all that car savvy, then Mozo recommends that you hire a professional mechanic to give it a once over. A little cash spent to save you buying a lemon is money well-spent.

On the contrary, a used car purchased at a second-hand dealership will likely give you up to 3 months warranty on parts should a mechanical problem arise. The car may cost a little more, but at least you have a little bit of cover!