Used Car Loans

They’re quite similar to personal loans or new car loans. If you’re considering a used car loan, you’d apply for a loan with a lender and once your application is successful, you’d pay it off in a set period of time with interest. This time period is usually between a minimum of 12 months to 7 years.

Additionally, car loans are typically ‘secured’. This means that the asset being purchased (in this case, the used car) is used as collateral for the loan. Typically with secured car loans, if you default on the loan, the lender is then able to repossess the asset and sell it to recover their losses.

Typically a car is considered used or secondhand if a car has already been registered under another driver’s name in Australia.

If you haven’t bought a car before, you might want to consider a used car if you:

• don’t live close to public transport;
• frequently commute to work;
• have a dependent that needs regular care or assistance with driving to appointments;
• Frequently drive in or out of metropolitan areas to the country (or vice versa) on the weekends; or
• you simply need an easier way to commute in your day to day.

It could be a suitable option for you because it’s usually a more cost-effective solution when compared with buying a new car. You could also avoid some of the depreciation that’s commonly associated with buying a new car – they drop in value as soon as you drive out of the dealership!

If you decide to take out a loan to buy a used car, you can choose between a secured or unsecured loan.

However, keep in mind that car loans are almost always secured. Here’s why:

• A secured loan means you need to provide an asset to your lender – typically your car – as collateral in case you need to back out of your loan (this is a worst-case scenario).

People tend to go for a secured loan when they’re buying something like a car, as the interest rates are usually lower, because generally the risk is lower for the lender because if you cannot meet your loan repayments they can repossess your car.

• But an unsecured loan could be a good option if you’re looking for a small loan for a short period of time. In this case, you won’t need to offer up any assets as security for your lender.

The interest rates for unsecured loans are typically higher, as the risk to the lender is gererally higher. You might also need a guarantor on your application if this is your first loan.

Keep in mind that some lenders won’t accept secured loans for used cars over a certain age or those of a particular model. In these cases, you may still be able to opt for a secured loan under a different asset.

Whether you’ve owned a car before or you’re thinking about buying your first one, a second-hand car could be a great option, particularly if buying a brand-spanking-new car is a little out of your wheelhouse (pun intended).

In this case, it might be worth looking into comparing used car loans to help you get on the road sooner rather than later.

Whether you’ve owned a car before or you’re thinking about buying your first one, a second-hand car could be a great option, particularly if buying a brand-spanking-new car is a little out of your wheelhouse (pun intended).

In this case, it might be worth looking into comparing used car loans to help you get on the road sooner rather than later.

When it comes to repayments, there are also fixed interest rates and variable interest rates.

• Fixed interest rate: This means the loan repayments for your car are set at a fixed amount for an agreed period of time, which is usually a minimum of 12 months.

A fixed interest rate could be a great option for you to quickly pay off your car by avoiding increases in your repayments, as the markets tend to fluctuate. But it could also mean you might miss out on lower interest rates on your repayments when interest rates drop.

• Variable interest rate: This means your car repayments depend upon the fluctuating interest rate, so when rates rise, so could your repayments. But if interest rates decrease, your repayments could too.

You would typically be required to make repayments every fortnight or every month. This depends on your lender, the type of car loan you choose, and the amount of money you borrow. Depending on the way interest is calculated on your loan, it’s generally better to make more frequent repayments where possible.

The amount you borrow from your bank or financial lender depends on a range of factors, including your income, employment status, your credit history, any other outstanding debts or credit products you have, as well as if you have any dependents.

What you end up choosing ultimately depends on your financial circumstances and lifestyle, as there are pros and cons to both options. It’s worth thinking about the following things if you’re comparing a used car loan with a new one:

• How much money can you borrow? Since used cars are generally cheaper than new ones, you’re less likely to be hit with a massive loan. In this case, you might find that you’ll be able to pay off a used car loan quicker, and therefore pay less interest over the course of the loan period than a new car loan.
• How much interest are you willing to pay? Used car loans are generally perceived as a higher risk for lenders, as the risk of them breaking down during the loan term is usually higher than the possibility of a new car breaking down. This means the interest rate tends to be higher to protect lenders against possible losses.
• How concerned are you about depreciation? New cars begin to drop in value as soon as a new driver leaves the dealership with them, and their value continues to decrease rapidly over the next two or three years. But the value of a used car has dropped with its first owner, which means you could save money when you look at the total amount of the loan.

If you find a used car that you think will suit you, you might like to check its details on the Personal Property Securities Register to make sure it hasn’t been previously written off, damaged, or stolen.

If you’re ready to compare used car loans, you can start here online with iSelect.* See the range of providers and simply click on an option that suits you to begin your application.