A car loan looks simple on the surface, but the structure you choose affects your total cost more than most people realise — and the dealership's finance desk isn't always shopping the market on your behalf.
Secured vs. unsecured
Most car loans are secured against the vehicle itself, which typically gets you a lower rate than an unsecured personal loan — the lender has the car as security if things go wrong. Unsecured car finance exists but usually costs more, since the lender is taking on more risk.
New vs. used car finance
New cars generally attract better rates than used ones, and many lenders set age limits on the vehicle — a loan on a car that's already 8 years old may come with a shorter maximum term or a higher rate than the same loan on a new car, since the vehicle's value (and usefulness as security) depreciates faster from here.
Balloon payments
A balloon (or residual) payment structure lowers your regular repayments by leaving a lump sum owing at the end of the term. It can make sense if you plan to sell or trade in the car around that time, but it's worth going in with a clear plan for that final payment — refinance it, pay it out, or trade in — rather than being surprised by it.
Compare the total cost of the loan (interest plus fees over the full term), not just the advertised rate or the size of the weekly repayment. A lower repayment stretched over a longer term, or built around a large balloon, can cost more overall than it looks.
Novated leases
If you're a PAYG employee, a novated lease (arranged through your employer, with repayments and running costs deducted from pre-tax salary) can offer real tax advantages depending on your income and usage — but it's a genuinely different structure to a standard car loan, and worth comparing properly rather than assuming it's automatically better.
Dealership finance vs. shopping the market
Dealership finance is convenient — it's arranged on the spot as part of buying the car — but "convenient" and "cheapest" aren't the same thing. Dealers often receive a commission for arranging finance, which can be built into the rate you're offered. Comparing that offer against the broader market before signing costs you nothing and takes a few minutes.
Should you just use your home loan instead?
If you have equity and access to redraw or an offset account, using home loan funds for a car purchase can sometimes work out cheaper than a dedicated car loan, since home loan rates are usually lower. It's worth weighing against the downside of stretching a car's cost out over a much longer effective term if you're not disciplined about paying it back down.
Next step
We compare car and vehicle finance across our panel the same way we do everything else — matched to your situation, not just whoever's sitting at the dealership finance desk.
Ask about vehicle finance