The short answer: there is no single best car finance option in Australia. The main ways to finance a car are a secured car loan, an unsecured personal loan, dealer finance, a novated lease, and a chattel mortgage for business use. For most people buying a car for personal use, a secured car loan usually comes with the lowest interest rates, because the car backs the loan.
But the option that genuinely fits you depends on a few things: whether the car is for personal or business use, whether your employer offers salary packaging, and how your own situation stacks up. And the single biggest money decision most buyers get wrong has nothing to do with the lender. It is comparing the weekly repayment instead of the total cost. More on that below.
I worked at a car dealership before I became a broker, so I have sat on the other side of the finance desk. This is the explanation I wish every buyer walked in with.
There are five common ways to finance a car in Australia. Each one suits a different kind of buyer, so it helps to know what you are choosing between before you start.
A secured car loan and an unsecured personal loan are the two most common options for personal buyers. Dealer finance is the loan arranged for you at the dealership. A novated lease is a salary packaging arrangement set up through your employer. A chattel mortgage is a business finance product for people buying a vehicle mainly for work. Here is how each one actually works, and where it tends to fall down.
A secured car loan is usually the lowest-cost option for someone buying a car for personal use. The car you are buying is used as security for the loan, which lowers the lender's risk. Lower risk for them often means a lower interest rate, a longer term, and a higher borrowing limit for you. You own the car from day one, and the lender records their interest on the Personal Property Securities Register until the loan is paid off.
The trade-off is that the car is security. If you cannot keep up the repayments, the lender can repossess it to recover what they are owed. Lenders also tend to have rules about the age of the car, so a very old or high-kilometre vehicle may not qualify. It suits buyers with a reasonable credit history who are buying a newer or near-new car.
An unsecured personal loan is worth considering when a secured loan does not fit, for example if you are buying privately or buying an older car. You are not putting the car up as security, so there is no asset for the lender to repossess if things go wrong, and the loan is often quicker to arrange with less paperwork.
The downside is the rate. Because the lender has no security, an unsecured loan almost always carries a higher interest rate than a secured car loan. Over a five-year term that gap can add up to thousands of dollars in extra interest, so it is worth weighing the convenience against the cost.
Dealer finance is the loan offered to you at the dealership, arranged on the spot when you buy the car. Its appeal is convenience. You can sort the car and the finance in one visit, which is why a lot of people sign up for it.
There are two things worth understanding before you do. First, it is usually a single finance offer, not a comparison across lenders, so you are not seeing what else is available. Second, dealerships generally earn a commission on the finance they arrange, and the car price and the finance can be discussed together rather than separately. None of that makes dealer finance a bad choice on its own. As NAB notes in its own car buying guidance, dealers earn commission on finance and on add-ons like extended warranties, so it pays to understand exactly what you are signing. The sensible move is to compare the total cost of a dealer offer against at least one other option before you commit. Getting finance pre-approved before you walk in also lets you treat the car price and the finance as two separate conversations.
A novated lease can be tax-effective if you are employed and your employer offers salary packaging. It is a three-way arrangement between you, your employer, and a finance provider. Your employer makes the lease payments from your pre-tax salary, which can reduce your taxable income, and a fully maintained lease can bundle running costs like fuel, servicing, registration and insurance into one payment. Electric and plug-in hybrid vehicles can be especially worth a look here, because eligible EVs are currently exempt from fringe benefits tax under a federal arrangement, which lowers the cost considerably.
The trade-offs matter. You do not own the car during the lease, and there is usually a residual value to pay at the end if you want to keep it. The arrangement is tied to your job, so if you change employers the lease may come back to you. There can also be limits on kilometres and
wear and tear. Because the tax treatment depends on your personal circumstances, talk to a licensed tax adviser before deciding whether a novated lease stacks up for you.
A chattel mortgage is a business finance product, designed for sole traders and companies buying a vehicle that is mainly used for work. You own the vehicle from day one and the lender holds a mortgage over it until the loan is repaid. For eligible businesses there can be tax advantages, such as claiming GST on the purchase price and deductions for interest and depreciation, and many buyers add a balloon payment to lower their regular repayments.
Two things to know. A chattel mortgage is generally not regulated under consumer credit law the way a personal car loan is, and the tax benefits depend entirely on your business and how the vehicle is used. This is squarely an area to work through with your accountant or tax adviser, not something to assume from a general guide.
The best car finance option is the one that matches three things: what the car is for, how you are employed, and what you want at the end. Work through those and the field narrows quickly.
If the car is for personal use, you are usually choosing between a secured car loan and an unsecured personal loan, and a secured loan tends to win on rate if the car qualifies. If your employer offers salary packaging and you want a newer car or an EV, a novated lease is worth pricing up alongside a loan. If the car is mainly for business, a chattel mortgage and the tax questions that come with it move to the front. The point is not to find the option with the lowest weekly repayment. It is to find the structure that fits your life and costs you the least overall.
The weekly repayment tells you what fits your budget. It does not tell you what the loan actually costs. Two loans with the same weekly repayment can cost very different amounts once you add up the full term, the interest, and the fees. That is where the comparison rate comes in. A comparison rate folds the interest rate together with most fees and charges into a single figure, so you can see past a low headline rate, and ASIC's Moneysmart describes it as the main tool for comparing the true cost of a loan.
Here is an illustrative example, using round numbers to show the idea rather than any real offer. Say you borrow $35,000 over five years. A loan advertised at a lower weekly repayment but stretched over a longer term, or carrying higher fees, can quietly cost you more in total than one with a slightly higher repayment over a shorter term. Always check the total amount repayable and the comparison rate, not just the number per week. (Illustrative figures only. A comparison
rate is true only for the example given, and different amounts or terms produce different comparison rates.)
A balloon payment is a lump sum left owing at the end of the loan, after all your regular repayments are done. Setting one means your weekly or monthly repayments are lower, which can help cash flow. The catch is that you still owe that lump sum at the end, and because you are paying down less of the loan along the way, you generally pay more interest overall. A balloon can make sense, particularly for some business buyers managing cash flow, and it can hurt if you have not planned for the final payment. Like the rest of this, it comes down to your situation.
Both can work. Going direct to a bank or lender is straightforward if you already know what you want. A broker compares options across a panel of lenders rather than a single bank's products, handles the application and paperwork, and is generally paid by the lender rather than by you. Where a broker earns their keep is when your situation is not cookie-cutter, or when you simply do not have time to compare the market yourself.
That is the part of the job I love, working out which lender actually fits someone, then explaining the options so they can make the call themselves. No pressure, no jargon, no judgment.
What is the best type of car loan for a first car? For a first car bought for personal use, a secured car loan is usually the most cost-effective option if the car qualifies, because it tends to carry a lower interest rate than an unsecured loan. The right answer still depends on the car, your income, and your credit history.
Does applying for a car loan hurt my credit score? A formal credit application is recorded on your credit file, and several applications in a short space of time can affect how lenders see you. Many brokers and lenders can give you an indication of your options using a soft check before you formally apply, which does not affect your score.
Can I get finance for a used car or a private sale? Yes. Secured car loans are available for many used cars, though lenders often have limits on the age of the vehicle at the end of the loan term. For older cars or private sales, an unsecured personal loan is sometimes the more practical route.
What is a comparison rate? A comparison rate combines the interest rate with most fees and charges into a single percentage, so you can compare the true cost of different loans rather than just the advertised interest rate.
Should I get pre-approval before going to the dealership? It helps. Walking in with finance pre-approved means you know your budget and your rate, and you can treat the car price and the finance as two separate negotiations rather than one bundled deal.
Written by Ashley, founder of Noma Finance. Before becoming a finance and asset broker, Ashley worked at car dealerships, and has personally held every loan type Noma helps with. Noma compares options across a panel of lenders to help people find finance that fits their situation, explained in plain English.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial, credit or tax advice. Consider whether it is appropriate for you and seek advice from a licensed professional before making a decision. Tax outcomes for novated leases and chattel mortgages depend on your circumstances, so speak with a licensed tax adviser or accountant. Any figures used are illustrative only.
