Best Way to Finance a Car in Australia

When it comes to buying a car, you have more than your fair share of ways to go about it. With costs rising across the board, it isn’t as simple as just dipping into the savings for many Australians these days.

According to VFACTS data, 1,220,607 new cars were registered as sold in 2024, while the Australian Automotive Dealer Association (AADA) recorded 2,324,805 units sold across used dealer and private listings. So, how are people doing it and which is the best option for your needs?

What is the best way to finance a car in Australia?

There’s a range of options to pay for your new or used car in Australia. These include:

• Secured car loans
• Unsecured car loans
• Novated leasing
• Dipping into your savings
• Using your home loan redraw facility
• Putting it on a credit card

Let’s take a look at each option to see how it works and why it might (or might not) be suitable for you.

Secured car loan

One of the most popular car finance options is a secured loan. More than $4 billion has been taken out in fixed term loans for road vehicles in each of the past seven quarters, which dates back to the September Quarter of 2023 and peaked at $4.653 billion in the December Quarter of 2024.

Under this agreement, the vehicle acts as security for the loan, giving you access to lower interest rates and fees compared to other unsecured finance types. You can take between one and seven years to pay off your loan, giving you flexibility in the size of your repayments and allowing you to ensure it’ll be completed within a comfortable timeframe for your financial situation.

If you have a good credit score, you could secure a car loan with a rate as low as 5.96% p.a. through Savvy (correct as of August 2025). On a $36,000 car loan, that’d mean a monthly repayment of $696.

Pros and cons of secured car loans

Dealer finance

While it may seem more convenient to take out finance through the dealer you’re purchasing your car from, it’s important to consider dealership finance compared to standard car loans in terms of pricing and overall suitability.

There are fewer moving parts in the process and it may be easier to incorporate a traded-in vehicle. However, things like inflated interest rates (after a low introductory rate) and purchase prices, large mandatory residuals and fewer options to compare from can all count against dealer finance.

While dealerships might advertise rates as low as 1.99% p.a. or even 0% p.a., common things hidden in the terms and conditions of dealers include 36-month loan terms and a minimum 10% deposit requirement. If you’re after a new car that costs $80,000, that would mean you’d need to stump up $8,000 and still face a repayment of $2,061 each month on a $72,000 loan.

Pros and cons of dealer finance

Unsecured car loan

An unsecured car loan or personal loan is similar to a secured car loan. However, the key difference is that the vehicle itself isn’t connected to the loan as collateral. Because of this, you can use the funds however you like and borrow money to put towards other expenses, rather than your car alone. Additionally, without the need to assess loan security, this finance option is often quicker to process.

However, the flip side of this is that you’re likely to be subject to notably higher interest rates and fees. In most cases, unsecured car loans are only advised for vehicle purchases if the model you’re after doesn’t qualify for secured finance through your lender (such as a 25-year-old car with a lender who only finances vehicles up to 15 years old).

Pros and cons of unsecured car loans

Novated leasing

A novated lease is a three-way arrangement involving you, your novated lease company and your employer. Your employer makes payments to the company on your behalf, deducting the amount from your pre-tax salary to cover the cost.

Because these payments are made from your pre-tax income, you’ll pay less income tax overall. You can also receive fleet discounts on the purchase of the vehicle and have GST credits claimed by your provider. The main obstacle is their availability: not all employers offer them and they aren’t available to all employment types (especially non-salaried employees).

Pros and cons of novated leasing

Paying for your car with savings

If you have enough in the bank to purchase a car without a loan, you could save thousands of dollars in interest and fees. You also won’t have to worry about any ongoing, long-term commitments to paying your lender.

However, the reality is that many Australians aren’t in a position to buy their next car with savings alone. According to research by Real Insurance in 2024, 69% of Australians are experiencing household financial stress. Buying your car shouldn’t wipe out your savings at the expense of household essentials.

Pros and cons of buying your car out of pocket

Using your home loan redraw facility

If you’re currently paying off your mortgage and have a redraw facility attached, you also have the option to use this to withdraw funds and use them to purchase your vehicle. In effect, this means you’ll be adding your car to your home loan.

Redrawing on your home loan means the impact on your monthly budget will be minimal and you won’t have to juggle an extra payment each week, fortnight or month. Because of the long-term nature of mortgages, though, you’ll likely end up paying much more for your car in interest than you would’ve otherwise.

Pros and cons of buying a car with a home loan redraw facility

Putting your car on your credit card

Lastly, you might think that simply putting your car on your credit card is a good idea. This is only the case if you have the funds available to pay off the debt in full within a very brief window, as exorbitant rates can apply to credit cards (easily sitting in the 15.00% p.a. to 20.00% p.a. range) if your outstanding balance exceeds the interest-free period.

Credit cards typically come with only a 30-day interest-free period, with most cards capping out around the 60-day mark. If you aren’t paying it off within a few months, you could see your debts mount very quickly and put you at greater risk of financial stress.

If you were to take out the average-sized car loan of $36,000, and were paying $1,200 a month off a credit card with an 18.00% p.a. interest rate, you’d repay $47,716 to pay the car off in three years and four months. On the other hand, if you had the same size car loan at a rate of even 9.00% p.a. on a five-year loan, your monthly repayments would only be $748 and you’d repay $44,838 in total. As a result, using your credit card to buy your next car is rarely the best option.

Pros and cons of buying a car with a credit card

What is the best way to finance a car for my business?

When it comes to business car finance, there are a few other options available for commercial-use vehicles. These are:

Chattel mortgage

Chattel mortgages are essentially the same as car loans, with a few extra features and conditions. Most notably, you can claim the GST on the purchase, as well as interest and depreciation, as tax deductions (up to the percentage of the car’s business usage). You also own the vehicle from the outset.

For businesses that prefer a swifter, more seamless turnover of vehicles, chattel mortgages may not be the most suitable.

Finance lease

The main alternative to buying your business car is leasing it. A finance lease allows you to essentially rent the car for your business over a period of up to five years. At the end of the term, you’ll need to pay the residual, either by paying it in cash, refinancing it to extend the lease or selling the car.

Operating lease

Unlike finance leases, operating leases come without a residual. This means you’ll have to hand it back at the end of your term. Another area of difference is that on-road costs like insurance, servicing and registration are often bundled into the lease payments, which isn’t usually the case for finance leases. This results in operating lease payments typically being higher.

What is the best way to finance an electric or hybrid car?

If you’re in the market for an environmentally friendly vehicle, one other option you’re likely to have open to you is a green car loan. These are the same as a standard secured car loan but come with a small (but meaningful) rate discount. It’s important to be aware of what constitutes a green vehicle with your lender.

It’s also worth noting that, due to their exemption from fringe benefits tax (FBT), novated leasing can be a highly cost-effective way to finance your electric vehicle. You can get a free quote and discuss your options with one of our novated leasing experts if you want to find out more.

So, what’s the best way to finance my car?

Ultimately, the best way to finance a car depends on you and your individual circumstances. Here are a few situations where one option may be better than the others:

• If you’re in a comfortable financial position with no major debts and have enough in savings to continue to manage your finances without issue, paying cash is likely the cheapest and most sensible option available.
• If you aren’t in a position to pay the full price out of pocket, a car loan is probably the next best option.
• If your work offers novated leasing and you’re earning enough for the tax savings to be worthwhile, that could be worth exploring (especially if you’re in the market for an EV).
• If the car you’re looking to buy is especially old or not in great condition, an unsecured loan might be the only option available.
• You should only ever put your car on your credit card if you have the means to pay it off quickly, due to their very high interest rates.

If you’re still unsure about where to start, we suggest using a car loan repayment calculator so you can get an idea of how much you can afford.