Like any time that you are going to be borrowing money, the most important features to consider are the ones that are going to help you to save money. They include:
The loan term
With most used car loans, you’ll get to choose the loan term that you’d like to repay the loan within. This can be anywhere between 1 to 5 years for used car loans. The choice of loan term will usually come down to your ability to repay the loan. The shorter your loan term, the higher your repayments will be.
To look at the difference between the cost and repayments between a 3 and 5 year loan, let’s look at the following scenario:
Loan amount: $15,000
Interest Rate: 6.99%
Repayment frequency: monthly
On a five year loan with these terms, you would pay a total of $2,817 in interest with a monthly repayment of $297, whereas a three year loan would see you only pay $1,671 in interest but you would have a monthly repayment of $491.
Fees - Upfront vs Ongoing
Like any loan, there are usually some fees attached to used car loans. Some of the fees a car loan may have include:
- Upfront fees
- Ongoing fees
- Annual fees
- Late repayment fees
- Early repayment fees
- Break fees (fixed rate loans only)
- Loan discharge fees
When you’re getting a used car loan, you are likely to pay some upfront fees. Upfront fees are a one-off payment you are charged at the time of opening your loan and depending on the lender can be between $0-$600. If you happen to find a car loan with a high upfront fee, make sure the interest rate and other features that you will be able to access outweigh this cost.
Ongoing fees are generally charged by the lender for the maintenance of your loan. While these fees can be as little as $10 a month, its important to remember that you will be paying these every month of your loan. So for instance, with a $10 monthly fee on a 5 year used car loan, you will pay $600 just to keep the loan going.
Flexible repayment options
Used car loans may also come with handy features that can give you a lot more flexibility with repayments, like extra repayments and redraw facilities. Having the option to make extra repayments towards your loan could really help you save in interest.
A redraw facility allows you to redraw any of these extra repayments if an unexpected bill comes up - but there may be limits to how much money you’ll be able to redraw, as well as a fee you may have to pay.
Are there any restrictions with a car loan for second-hand cars?
One of the most common restrictions you’ll find when you apply for a loan for a used car is what is defined as an ‘old car’, especially if you are looking to secure the loan. For example, some providers may consider a car over 2 years to be old, while others may not approve a loan for a car that’s over 12 years old.
How will I receive my funds to buy my used car?
Once your loan has been approved, then funds will either be deposited into your bank account or if you are buying through a dealer they can be sent directly to the car dealership.
Can I switch car loans?
Yes you can. If you find that your financial circumstances change during the course of your loan term there is an option to refinance. So if you ever need to refinance your used car loan, you can check out our car loan refinance table.
What else should I consider if i'm borrowing money for a used car?
If you’re going to be buying a used car and borrowing money to finance it, you are going to want to make sure that the car is in the best possible shape it can be for its age. You don’t want to be in the position of repaying a car loan for a car that spends more time in the garage than on the roads or worse for a car that is no longer even yours.
When buying a used car it’s a good idea to get an independent inspection that checks:
- The number of kilometres the car done compared to its age
- Whether there any dents, scratches or bubbles in the paint or cracks in the windscreen
- Checks for rust
- The tyres exceed the legal tread depth of 1.5mm
- Air conditioning, windows and lights work
What do I need to apply for a car loan?
When you find the right loan for you, you’ll need to have the relevant documentation prepared for when you fill out the loan application form. This could include things like:
- Proof of income - This could include bank statements or payslips, as lenders will need to see that you are able to repay the loan through a steady income.
- Proof of savings - Lenders also want to see genuine savings and that you are able to spend your money wisely.
- Proof of liabilities - This involves any debt you may have on either a credit card or home loan.
- Proof of insurance - Depending on the lender, you may not be approved for a car loan unless you have comprehensive cover beforehand. You can use our car insurance comparison too to sort out your car insurance policy.