Used Car Financing Options in Australia

Buying a used car can be a practical way to manage costs, but choosing a financing option is also an important decision. Understanding how different finance options work can help you compare costs, risks and flexibility before deciding which option may suit your circumstances.

The financing option that may be appropriate for you will depend on factors such as your financial situation, credit history, and the type of vehicle you want to buy. This guide explains common used car financing options, outlines key considerations, and explores how a personal loan may be used to fund a used car purchase, depending on the lender’s product terms and lending criteria.

Understanding used car financing in Australia

Used car finance may be offered by licensed credit providers, while intermediaries such as brokers may provide credit assistance by helping consumers compare or apply for finance products.

Loan structures, fees and pricing can vary between lenders and products. Lenders apply their own credit policies and pricing structures, but they must also comply with responsible lending obligations, which generally require them to make reasonable inquiries about a consumer’s financial situation and assess whether a credit contract would be unsuitable before providing credit.

Why used car loan rates may differ

Lenders may consider factors such as:

• the borrower’s financial circumstances
• the type of loan
• the amount being borrowed
• the vehicle and any related costs
• the lender’s credit policies and assessment criteria

Some lenders may also consider the relationship between the amount borrowed and the value of the vehicle as part of their credit assessment.

Typical approval considerations

As part of responsible lending obligations, lenders generally need to make reasonable inquiries about a consumer’s financial situation and financial commitments. This may include information about:

• income
• expenses and other financial commitments
• liabilities and existing debts
• credit information
• details about the vehicle and related costs, where relevant

Lenders may also verify aspects of this information as part of their assessment process.

Used car financing options

Below is an overview of common used car financing options in Australia, with key considerations for each.

Secured car loans for used vehicles

A secured car loan generally uses the vehicle as security for the loan. If repayments are not met, a lender may take enforcement action in accordance with the credit contract and applicable consumer credit laws, which generally include requirements that apply before enforcement or repossession.

Interest rates and loan terms vary depending on the lender, product and borrower circumstances.

Who offers secured used car loans?

Availability and eligibility criteria for secured car loans vary between lenders.

Pros

• may offer lower rates than some unsecured lending options
• may allow higher borrowing amounts, depending on the lender
• may offer longer loan terms, depending on the product
• may be available for some used vehicles, subject to lender criteria

Cons

• eligibility may depend on the vehicle meeting the lender’s requirements
• there is a risk of enforcement action if repayments are not met
• additional documentation may be required
• insurance may be required or may need to be considered as part of the overall cost, depending on the lender and the contract

Unsecured car loans for used vehicles

An unsecured loan does not use the car as security. This may provide more flexibility depending on the lender and the purchase.

Pros

• no vehicle security required
• may be used for a range of vehicle purchases, depending on the lender
• application processes may be simpler in some cases

Cons

• rates may be higher than for some secured loans
• borrowing amounts may be lower
• loan terms may be shorter

This option may be considered by buyers who prefer a finance option that does not depend on the vehicle being used as security.

Dealer finance for used cars

Some dealerships offer finance through partner lenders at the point of sale.

Pros

• convenient point-of-sale experience
• finance options may be presented as part of the purchase process

Cons

• rates, fees and total loan costs may differ from other lenders
• add-on products or extras can increase the total amount payable
• there may be fewer opportunities to compare alternatives during the purchase process

Comparing dealer-arranged finance with independent lenders may help you better understand the total cost and key loan terms.

Credit card financing

In some cases, a buyer may consider using an existing credit facility such as a credit card, depending on the seller and the purchase amount involved.

Pros

• may be useful for smaller purchases in some circumstances
• no separate loan application may be needed if you already have the card
• some card features may apply, depending on the product

Cons

• interest can be high if the balance is not repaid within the applicable interest-free period
• fees or surcharges may apply
• not all sellers accept credit cards

Credit cards are regulated credit products and can involve higher interest costs if balances remain outstanding.

Home loan redraw or offset accounts

Some borrowers may consider using existing funding options linked to a home loan, such as redraw or offset funds, depending on their circumstances and the terms of their mortgage.

Pros

• may avoid taking out a separate loan
• may offer flexibility depending on the home loan product

Cons

• may reduce your financial buffer
• may affect your broader borrowing position
• total borrowing costs will depend on your mortgage structure and repayment behaviour

Whether this approach is appropriate will depend on your individual circumstances and the terms of your home loan.

Other vehicle funding arrangements

Other vehicle funding arrangements may exist outside standard car loans and personal loans. Their features, costs and potential tax consequences can differ.

If you are considering a more complex arrangement, make sure you understand the contract terms and any financial implications before proceeding.

Tips for comparing used car finance

To compare used car finance more effectively, consider the following general tips:

• compare multiple lenders, as rates, fees and criteria can vary
• consider how much you can realistically afford to borrow and repay
• a larger deposit may reduce the amount you need to borrow
• shorter loan terms may reduce total interest costs, although repayments may be higher
• review your credit information and overall financial position before applying

Learn more about credit scores here:
https://www.credit24.com.au/blog/what-is-a-good-credit-score-australia

Consider a personal loan for a used car purchase

A personal loan is one possible way consumers may fund a used car purchase, depending on the lender’s product terms, eligibility criteria and lending assessment.

Personal loans for used cars

A personal loan may be used to fund a used car purchase depending on the lender and the permitted loan purpose.

Why some borrowers consider an unsecured personal loan

• the vehicle does not usually need to be provided as security
• the loan may be used across a range of purchase situations, depending on the lender
• repayments may be fixed and predictable, depending on the product
• the application process may be completed online, depending on the lender

Whether you are buying your first car or replacing an existing vehicle, understanding the different financing options available may help you make a more informed decision.

FAQs about used car financing

What’s the difference between new and used car loan rates?

Rates can vary depending on the lender, the borrower’s circumstances, the type of loan and the features of the product.

How old can a used car be to qualify for financing?

Vehicle age criteria vary between lenders and products. In some cases, different finance structures may be available depending on the vehicle and the lender’s criteria.

Can I get used car finance with poor credit?

Approval will depend on the lender’s assessment of your circumstances, including your income, expenses, liabilities and other relevant information considered as part of the lending assessment.

Should I use dealer finance or an external lender?

Dealer finance may be convenient, but other lenders may offer different rates, fees or terms. Comparing available options may help you decide which option best suits your situation.

How much can I borrow for a used car?

Borrowing limits vary by lender and product. The amount available will depend on your financial circumstances and the lender’s lending assessment.

What documents are usually required?

A lender may ask for identification, income and expense information, bank statements, and other information relevant to the application.

How long does approval take?

Assessment and funding timeframes vary between lenders and will depend on the application, approval process and banking systems.

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.

The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.