Buying a car is the second biggest purchase most Australians make after their home. The average new car costs over $45,000 and the average used car around $30,000. Yet most buyers spend hours researching the car and minutes on the finance — often accepting whatever the dealer offers.
That is a costly mistake. The difference between a dealer finance rate and the best broker rate can be 2–4% per annum. On a $40,000 car loan over 5 years, that difference costs you $2,500 to $5,000 in extra interest.
How Car Loans Work
A car loan is a secured personal loan where the vehicle is used as collateral. If you stop paying, the lender can repossess the car. Because the loan is secured, rates are typically lower than unsecured personal loans.
Key terms:
- Loan term: 1 to 7 years (5 years is most common)
- Fixed or variable rate: most car loans are fixed, giving you certainty
- Secured: the car is the security — you cannot sell it until the loan is paid off
- Balloon payment: optional lump sum at the end to reduce monthly repayments
Car Loan Rates: March 2026
Post-RBA hike rates from lenders on our panel:
| Lender | Rate From | Type | Best For |
|---|---|---|---|
| Westpac | 6.99% | Bank | Existing customers, new cars |
| Great Southern Bank | 6.99% | Bank | Competitive rates, flexible terms |
| AFG Options | 6.99% | Non-bank | Broker-only rate |
| UniBank | 7.49% | Bank | Union members, low fees |
| Plenti | 7.49% | Non-bank | Online, fast approval |
| Metro Finance | 7.99% | Non-bank | Specialist car finance |
| CarFinance.com.au | 7.99% | Non-bank | Used cars, older vehicles |
| Liberty | 8.49% | Non-bank | Non-standard credit |
| Automotive Finance Direct | 8.49% | Non-bank | Trucks, commercial vehicles |
| Pepper Money | 8.99% | Non-bank | Bad credit, self-employed |
Rates as of March 27, 2026. Compare your personalised car loan rate here.
New vs Used Car Finance
New car loans
Typically attract the lowest rates (from 6.99%). Lenders view new cars as lower risk because they have a known value and longer useful life. Terms up to 7 years available.
Used car loans
Rates are usually 0.5–2% higher than new car rates. Most lenders restrict used car loans to vehicles under 10–15 years old. The older the car, the shorter the maximum term and the higher the rate. Some specialist lenders like CarFinance.com.au focus specifically on used vehicles.
Demo and ex-fleet vehicles
These attract similar rates to new cars as they are typically under 12 months old with low kilometres. They can be great value — 10–20% cheaper than new with almost-new rates.
Balloon Payments: Should You Use One?
A balloon payment is a lump sum due at the end of your loan term. It reduces your monthly repayments but means you owe a large amount at the end.
Example on a $40,000 loan over 5 years at 7.49%:
| Balloon | Monthly Repayment | Final Payment | Total Interest |
|---|---|---|---|
| No balloon | $800 | $0 | $8,000 |
| 20% ($8,000) | $700 | $8,000 | $10,000 |
| 30% ($12,000) | $650 | $12,000 | $11,000 |
Our view: Balloon payments reduce cash flow pressure but cost you more overall. Only use one if you plan to sell or trade the car before the balloon is due. For a car you intend to keep, pay it off in full.
Dealer Finance vs Broker vs Bank
| Dealer Finance | Bank | Broker | |
|---|---|---|---|
| Convenience | Done at the dealership | Separate application | Online, from home |
| Rate | Typically 8–14% | 6.99–9% | 6.99–8.49% |
| Choice | 1–2 lenders | 1 lender (them) | 50+ lenders |
| Negotiating power | Low | Medium | High |
| Add-ons pushed | Yes (insurance, warranty) | Some | No |
The dealer finance trap: Dealers make significant commissions on finance — sometimes more than they make on the car itself. They may offer a “special rate” that sounds good but includes inflated fees or unnecessary add-ons. Always compare before you sign.
Get pre-approved before you visit the dealer
Walk in with finance sorted. Negotiate the car price, not the interest rate.
Compare Car Loan RatesHow to Apply for a Car Loan
What you need:
- Driver licence — current Australian licence
- Proof of income — 2 recent payslips or tax returns
- Bank statements — last 90 days
- Vehicle details — make, model, year, kilometres (if buying a specific car)
- Purchase price — or an estimate if still shopping
Pro tip: Get pre-approved before you go car shopping. Pre-approval tells you exactly how much you can spend, locks in your rate, and gives you negotiating power at the dealership. The dealer knows you can walk away because you already have finance.
Frequently Asked Questions
Can I get a car loan with bad credit?
Yes. Lenders like Liberty (from 8.49%), Pepper Money (from 8.99%), and specialist car finance companies work with non-standard credit. Rates will be higher but approval is possible with stable income.
How much deposit do I need?
Most lenders will finance up to 100% of the purchase price for new cars. For used cars, a 10–20% deposit is recommended but not always required. A larger deposit means a lower rate and smaller repayments.
Is it better to pay cash or finance?
If you have the cash and it will not drain your emergency fund, paying cash avoids interest entirely. However, if the cash is earning a return elsewhere (offset account, investments), financing at 6.99% while your money earns 5%+ can make financial sense. Run the numbers for your situation.
Can I pay off my car loan early?
Most car loans allow early repayment but some charge a fee (typically 1–2 months of interest). Always check the early repayment terms before signing. Many non-bank lenders offer zero early repayment fees.
What about novated leases?
If your employer offers salary packaging, a novated lease lets you pay for your car with pre-tax dollars. This can be tax-effective but the savings depend on your income and GST status. It is a separate product from a standard car loan — talk to a broker about which option works best for your situation.