Should I get a car loan or pay cash?

If paying cash still leaves an emergency fund and you would not earn more than the loan rate elsewhere, cash is simpler. If cash would empty the offset or the emergency fund, a modest loan can be rational. Do not finance a car because the repayment 'sounds like a phone bill'.

Is dealer finance more expensive?

It can be convenient and sometimes competitive, but dealers may load the rate, add origination, and sell add-on insurance. Always walk in with a pre-approval from a bank, credit union or specialist so you have a comparison rate in your pocket.

Can I get a car loan for a used car?

Yes, subject to age, kilometres, and lender policy. Very old cars may be unsecured personal loans instead, at a higher rate. See our used-car finance guide.

How car loans work in Australia | First Choice Loans

A car loan is usually a secured consumer credit contract with the vehicle as collateral, a term of three to seven years, and a dealer origination path that is optional and often expensive. Here is the structure without the yard script.

By Tom Ashford, Automotive finance writer · 5 February 2026 · Updated 4 October 2026 · 5 min read

Car yards are theatres. The lighting is good, the coffee is instant, and the finance office is where the profit hides after you have already named the kids' car-seat colour. An Australian car loan is not complicated once you step outside: it is typically a secured consumer credit contract, the car is on the PPSR, you pay instalments, and at the end you own it — unless a balloon is sitting there like a second purchase.

This guide covers structure, comparison rates, dealer versus direct, used versus new, and the add-ons ASIC has spent years warning about.

The contract in one page

Amount: car price minus deposit plus, if you allow it, on-roads, warranties, and add-ons. Term: often 3–7 years. Rate: risk-based, usually fixed. Security: the vehicle. Insurance: comprehensive, nominated. Default: they can take the car. Comparison rate: legally required in ads, still ignored in the finance office unless you mention it.

If the amount includes a five-year extended warranty you did not ask for, you will pay interest on that warranty. Say no, then decide.

Dealer finance is a distribution channel

The dealer introduces you to a lender (sometimes several) and may receive a commission. That is legal. It is also an incentive to put you with the lender who pays, not the lender who is cheapest. Walk in with a pre-approval from your own bank, a credit union, or an online lender. Use the dealer's offer as a match-or-beat moment. If they beat it without stuffing add-ons, fine.

Never let the 'drive today' urgency set the rate. Cars that exist today will exist on Thursday.

New versus used

New cars have lender-friendly valuations and longer potential terms. They also depreciate while you watch. Used cars can be better value and tighter on policy: age at end of term, kilometre caps, commercial use, imported grey-market vehicles. Our used-car finance piece is the deep dive.

Electric vehicles have their own residual and specialist-product quirks; some lenders are still catching up. If the car is a plug-in, say so early.

Deposit, LVR, and the 'no deposit' ad

A deposit lowers the amount, the risk, and sometimes the rate. 'No deposit' means 100 per cent of whatever they packed into the contract, which may be more than the car's wholesale value. Negative equity on day one is how people stay trapped in a car they hate.

If you have cash in a home-loan offset, think carefully before emptying it for a depreciating asset. The mortgage rate may be lower than the car rate, which argues for using cash — or the reverse, if the car rate is ugly. Run both.

Add-on insurance and warranties

Loan protection, gap cover, tyre and rim, extended warranties sold in the finance office have a long, grim ASIC history of poor value. Some products have been banned or constrained. Treat every add-on as optional. Gap cover is the least silly if you are high-LVR on a fast-depreciating new car, and even then, read the exclusions. Do not finance add-ons you could buy later with cash.

Worked sketch

Car $28,000 drive-away, deposit $4,000, loan $24,000, 5 years, 8.5 per cent, no monthly fee, no balloon. Repayments are knowable; total interest is knowable. Same car, $0 deposit, $3,000 of extras packed in, 7 years, 10.5 per cent, $6,000 balloon: the monthly figure looks friendlier and the car costs more. The second deal is how yards sell.

Alternatives

Pay cash. Novated lease if you are eligible via an employer. Unsecured personal loan if the car is too old to secure. Public transport and a share car, which is not a joke if you live within a decent train map.

MoneySmart's cars content, including the old Cars app research, is still the public-interest baseline. Take it into the finance office on your phone. They have seen it. They are hoping you have not.

Business use versus consumer credit

If the car is for an ABN and you are not using a consumer contract, different rules and sometimes different rates apply. Mixing 'it's for the business' in the yard and then parking it at school pickup is how you get the wrong contract. Be accurate. Consumer credit has protections you may want even if a business rate looks prettier.

Early payout

Car loans can have early-termination formulas. Ask before you think about upgrading in year two. Balloons make payouts lumpier. Get a figure in writing.

The cooling-off you may not have

Some states give unsolicited consumer-credit cooling off; a yard finance contract you asked for may not. Do not sign as a way to 'hold' the car. Hold the car with a small refundable deposit on the sale contract, not with a seven-year credit contract.

Pre-approval as a yard tool

Walk in with a letter or portal screenshot that names an amount, a rate, and an expiry. Tell the finance manager you will use it unless they beat the comparison rate without add-ons. Then sit with the silence. The silence is where better deals appear. If they cannot beat it, leave with your pre-approval and buy the car where the metal is cheapest.

Do not let them 'submit to their panel' as a way of running enquiries you did not authorise. Ask how many credit files they will touch.

On-road costs belong in the loan conversation

Stamp duty on the vehicle, registration, compulsory third party, and dealer delivery are easy to roll into the amount financed. Rolling them in is convenient and expensive. If you can pay on-roads in cash, the loan is smaller and the LVR on the car is healthier. If you cannot, you can still buy the car; just know you are financing tax and plates at 9 per cent.

Drive-away pricing can be honest. It can also hide extras. Ask for a line-item invoice before the credit contract is printed.

Documents to bring, and a last caution

When you sit down with a lender, broker, packager or yard manager, bring a pre-approval, the car's invoice without extras, and a comparison-rate screenshot from your own lender. If they will not look at paper, they are selling speed. Speed is expensive in Australian credit.

Write down the thing you are afraid to ask — the fee, the balloon, the HELP treatment, the break cost — and ask it first, while you still have the nerve. The second conversation is always weaker. If the answer is vague, you do not have an answer.

This desk would rather you delay a week than sign a contract whose comparison rate you cannot explain to a friend. ASIC's MoneySmart remains the public-interest spare brain: use it the night before, not the morning after. And if the product only works on overtime that is not in your contract, it does not work. Buy a smaller thing, or wait. Waiting is still allowed.

How car loans work in Australia