Used Car Loans

Want to know if you can finance a used car? Read our guide and get the knowledge you need.

Used Car Loans

Car loans for buying used or second-hand cars can vary between secured or unsecured loans, depending on a borrower’s credit score and financial situation. Used car loans can also extend to categories such as certified used and vintage cars, the latter of which may appreciate, instead of depreciating, in value.

Should I buy used over new?

Buying used over new can have many advantages for the buyer; used cars (considered any car registered previously) are usually cheaper than buying new. A new car, when driven off the dealer lot for the first time, loses about 15-20% of its value. If a private seller decides to sell their new car after a short period, this can mean a big bargain for the buyer. Other types of used cars such as certified used cars are sold by dealers. These types of cars are usually less than three years old and factory refurbished. This is a best-case scenario for a second-hand car, however.

Many used cars may be over 10 years old, which makes it harder to finance with a secured car loan. Used cars have more wear and tear, fewer or outdated safety features, engine or chassis damage, and electrical problems. It’s up to the buyer to get an independent valuation or inspection to figure out if the car has these problems and decide whether fixing them is worth the time and effort.

What kind of loans are available for used cars? Are there limitations?

There are two major types of loans available for purchasing used cars – the secured car loan and the unsecured car loan. A secured car loan has limitations on it that unsecured car loans usually do not. A secured car loan may restrict the age of the car to 10 to 12 years. This is because older cars have low residual value and are a higher risk for lenders using such an old car as collateral. The upside is that bad credit customers have a better chance of being approved for a secured loan over an unsecured loan. Secured loans are also more competitive than comparable unsecured car loans, as the lender passes on savings by using your purchased car as collateral.

An unsecured car loan does not use your purchased car as collateral. Unsecured loans are also known as personal loans by some banks or lenders. Unsecured loans are not directly tied to the value of the car, so a borrower may finance more than the purchase price to consolidate debts or pay for extras such as insurance and registration. The downside is that unsecured loans are usually reserved for customers with good or excellent credit. These loans are also usually more expensive and have higher interest rates than secured loans of similar value and loan terms.

How do I get a good deal on a used car loans?

Getting a good deal on a loan for buying a second-hand car takes a bit of preparation. First off, you should figure out your budget and how much you intend to borrow. You can get a rough estimate using a car loan calculator. You’ll need to have an interest rate, a loan term, and a cost. You can play around with these figures until you hit upon a comfortable amount in repayments. You also need to figure stamp duty, registration fees, any repairs, insurance, and ongoing costs such as fuel.

You should then compare different loans on the market. Be sure to look for comparison rates over interest rates, as comparison rates include most fees and charges in the loan expressed as a percentage.

Get a hold of your credit score or credit history. This could show you what kind of interest rate you could be up for. Good credit scores will have better interest rates, and vice versa. If you have mistakes on your credit history, use this time to get them fixed.

If you are having trouble comparing loans on the market, you may want to consult a car loan broker. They can help streamline the process and find a competitive loan from their lending panel, which usually consists of dozens of lenders and banks.

Once you’ve found a car, apply for a loan. Make sure you have documents and identification in order, as your broker or lender will ask for them as part of the process. Taking longer to submit ID and payslips can cause delays in approval.

Can I buy a second-hand car from a private seller?

Yes. If you opt for an unsecured loan, there are no restrictions on where and from whom you can buy cars from. Though rare, secured loans may have restrictions on private sales. You need to talk to your lender or broker to find out if your loan is eligible.

What should I look for when buying a used car?

When you’re looking for a used car, you need to be cautious; especially if you are buying from a private seller. Buying from a private seller is usually cheaper than buying from a dealer, though you have consumer protections such as cooling off periods and warranties with a dealer. Certified used vehicles are most expensive but come with warranties and peace of mind that the car is refurbished to some degree.

If you are buying from a private seller, make sure the car is not listed as stolen or written-off. You can conduct a check using the Personal Property Securities Register (PPSR) by getting the Vehicle Identification Number (VIN). If your seller is cagey about sharing the VIN, walk away.

You should also get an independent safety inspection done on the car to reveal any damage or internal malfunctions before buying. Some professional inspectors can look over the vehicle for a fee; sometimes having a knowledgeable friend give you a second opinion can also help you see a used car for what it is.

Compare used car loans and calculate repayments

LenderProduct NameAdvertised RateComparison RateMonthly Repayment
Savvy New Car Loan 2.85%
fixed
3.93% $537.06
Bank of Australia Used Car Loan 6.45%
variable
6.66% $586.28
ANZ Online Secured Car Loan 7.85%
fixed
8.70% $606.14
CUA Fixed Rate Car Loan 7.99%
fixed
8.29% $608.15
BankSA Secured Fixed Personal Loan 8.49%
fixed
9.39% $615.35
St George Secured Fixed Personal Loan 8.49%
fixed
9.39% $615.35
CBA Secured Car Loan 8.49%
fixed
9.54% $615.35
NAB Variable Rate Personal Loan 14.19%
variable
15.06% $701.01

* The interest Rate of 4.99% p.a. with a comparison rate of 5.89% p.a. is based on a 5 year secured consumer fixed rate loan of $40,000. WARNING: The comparison rate, monthly repayment and total cost applies only to the example given and may not include all fees and charges. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate. Establishment fees and monthly fees apply only to consumer loans. Commercial use loans may attract different fees.

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