How do Car Loans Work?

Getting a car loan is a reliable way to purchase a car quickly and conveniently. Money3 will give you a fair go at applying for car finance. Keep reading to learn how our car loans work.

What are car loans?

Car loans are a type of personal loan you can take out to help you purchase a new or used car. Car loans are offered by financial institutions (e.g. banks) and responsible, independent lenders.

You are usually required to meet eligibility criteria in order to qualify for a car loan. After being approved, your lender may deposit the loan amount into your bank account or transfer it directly to your car dealership (or private seller) when the loan is secured against the vehicle. As a car loan recipient, you will need to pay back your loan amount with interest to your lender.

How does car financing work?

If you don’t have the funds to purchase a car ready at hand, a car loan can ensure that you have the money you need. Whether you’re looking to purchase a used or new car, there are car loan options you can consider.

A car loan lets you borrow money in return for repayments made back to your lender with interest. Your loan will come with conditions specific to your situation - for example, how long you will need to repay your loan and how often you make repayments.

At Money3, we may offer you a pre-approval on your loan so you can better gauge your borrowing power. We could also help you find your ideal car and work with your dealership or seller directly.

What factors should be considered in a car loan?

When taking out a car loan, there are a number of factors that should be considered:

Interest rate: interest will be added to the regular repayments that a borrower needs to make. As such, it is important to consider interest rates and whether a fixed rate loan may be more suitable
Car dealer: consider whether the car dealership or seller you’re looking to purchase a car from works with your lender
Car loan repayments: ensure that your car loan repayments are affordable and you can make them comfortably
Loan period: you may want to settle on a loan period that is compatible with your financial timeline
Upfront and ongoing fees: depending on the lender, you may be required to pay ongoing fees in addition to upfront repayments, such as regular maintenance costs.

Please note, that you may want to obtain legal and financial advice in relation to the loan contract being offered to you.

What car loan options are available?

Money3 offers a wide selection of car loan options. It may be useful to compare car loans to find one that is best suited to your financial goals and needs.

Secured car loan

Secured car loans are loans where the lender possesses security over the car (so that they can sell it if the borrower can’t repay the loan). A secured car loan is often considered low-risk with lower interest rates.

Find out how secured car loans work with Money3.

Bad credit car loan

A bad credit car loan is a car finance option designed for those with a bad credit rating. At Money3, we’ll give you a fair go at applying for car finance, even if you have a poor credit history.

Loans on Centrelink

You may be eligible for Loans on Centrelink if you regularly receive Centrelink welfare payments. You may be able to receive car finance even if you are on Centrelink income, as long as you meet Money3’s eligibility criteria.

Single parent car loan

Single parent car loans are car loans offered specifically to single parents. Their lending criteria may be more flexible (compared to other car loans) as they take into account the earnings of a single-income family.

Fixed rate car loan

A fixed rate car loan is a car loan where repayments are made with a fixed interest rate. As a result, borrowers can expect to make the same repayments throughout their loan term.

1. Subject to verification, suitability and affordability

Car Loan FAQs

How long can you do a car loan for?

How long your car loan lasts depends on the loan term conditions outlined by your lender. Generally, Money3 car loans last between 2 to 3 years, with some lasting up to 6 years. The loan period will depend on the amount you are borrowing and the affordability of the loan.

Is taking out a car loan a good idea?

You may consider taking out a car loan if you’re in a hurry to purchase a car but don’t have enough funds to do so currently.

How are payments calculated on a car loan?

Your car loan repayments are calculated by your loan amount plus interest and fees, divided by the loan term (the rate at which you need to make repayments).

Does taking out a car loan hurt your credit?

Taking out a car loan may positively or negatively affect your credit score depending on how reliably you make repayments (i.e. on time).