Cars driving the personal loan market: Aussies turn to personal loans to afford new cars
Over half of Australians (52%) who took out a personal loan in the past 10 years did so to buy a car
14 December 2021
- Mozo’s research found just over half (52%) of Australians have taken out a personal loan in the past 10 years to buy a car.
- The research shows the average car loan was $25,000, while other personal loans were $14,000.
- Mozo analysed 338 personal loan products issued by 82 Australian financial institutions and found the average new car loan interest rate in its database was 5.95% while a secured personal loan was 7.59%.
- ABS figures showing car finance loan commitments increased 1.9% in September.
- Mozo also found 14% of people used their personal loan for debt consolidation, 11% medical expenses and 10% for going on a holiday.
Financial comparison site Mozo.com.au has found just over half of Australians (52%) who took out a personal loan in the past 10 years did so to buy a car, with the average car loan around $25,000, while other personal loans were $14,000.
The research comes as the latest Australian Bureau of Statistics (ABS) figures show car finance loan commitments increased 1.9% in September (seasonally adjusted) or $1.123 billion.
“With many Australians heading back out on the roads after prolonged lockdowns across the country, in recent months we’ve seen hundreds of thousands of motorists looking to upgrade their cars,” says Mozo spokesperson Tom Godfrey.
Data from the Federal Chamber of Automotive Industries shows since January this year 890,790 new cars have been sold across the country, with a monthly peak of 110,664 in June.
“With car sales remaining steady, demand for car loans and personal loans is also continuing. But as with all personal finance products, it pays to compare loans to help ensure you’re driving home a good deal,” Godfrey says.
“While you can use either a car loan or a personal loan to finance a vehicle purchase, it’s important to understand the differences between the loan types.”
“Your credit record, whether you’re looking to buy a new or used car and how much flexibility you want with your finances, can all impact the type of loan you’ll need.”
Industry data also shows the used car market is accelerating, being driven by supply issues with new vehicles as microchips used to power vehicle safety systems and infotainment technology remain hard to come by.
“With some people being forced to consider buying a used car as the microchip shortage puts the brakes on the supply of new cars, the used car loan market is running hot. If the car you’re trying to purchase has a lot of ks on the clock, you might find some car loan providers unwilling to finance it, which is when a personal loan might come in handy,” says Godfrey.
Mozo analysed 338 personal loan products issued by 82 Australian financial institutions for its 2022 Mozo Experts Choice Personal Loan Awards, with People’s Choice awarded the Personal Loan Provider of the Year. It also found the average new car loan interest rate in its database is 5.95%, while the average used car loan is 6.57%. The average secured multi-purpose personal loan interest rate in its database is 7.59%, while the average unsecured personal loan interest rate is 9.54%.
As well as financing cars, Mozo’s research also found 14% of people used their personal loan for debt consolidation, 11% medical expenses and 10% for going on a holiday.
Personal & Car Loan Tips
- You can use either a personal loan or a car loan to finance vehicle purchase.
- It’s important to compare the interest rates, fees and terms and conditions for both car loans and personal loans.
- Although car loans can have cheaper average interest rates, personal loans can be more flexible and allow you to refinance if you need to without selling your vehicle.
- Car loans are secured to the vehicle being financed, which means the car can be repossessed if you don’t make repayments.
- If you have a poor credit rating it could affect the interest rate you pay on a personal loan and your ability to get finance, while a car loan is secured to the vehicle so you might be more likely to get approved if you have a few black marks on your record.
Notes: Mozo conducted national representative research through Researchify in August 2021 n = 1,670. Where percentages total greater than 100%, respondents were able to select multiple answers. Average new and used car loan rates based on an average $30,000 loan across both fixed and variable rates. Average secured multi-purpose personal loan rates based on an average $10,000 loan across both fixed and variable rates.