The Australian car finance market offers a variety of loan options tailored to different financial circumstances.
Access to the best options is usuallly determined by your credit history.
Often the best interest rates that you see advertised may not be available to you. Which can lead to a lot of wasted time and your application being rejected.
In this article, we’ll discuss the various car loan application channels and who they are best suited to.
In This Post:
Where Can You Get a Car Loan?
Direct to a Bank or Credit Union
The traditional way to get a car loan is to go to your existing bank and make an application. Simple!
There is only one problem with this in today’s world – banks don’t like car loans very much.
Repossessions can be a messy business for some of the most publicised institutions in Australia. So the product options are narrow and eligibility criteria are strict.
Mortgages are where their bread is buttered and there is little incentive for them to venture far beyond this.
The rates can be pretty good though.
Pros:
- Competitive interest rates for customers with good credit
- Option to bundle with other banking products
Cons:
- Strict lending criteria, making approval harder for some borrowers
- Limited product options
- It can be slower compared to other lending options
Direct to a Non-Bank Lender
With banks gradually moving out of auto finance there was an opportunity for other lenders to fill that gap in the market.
There is now a long list of non-bank lenders who specialise in servicing all corners of the market. Here at Gusto Finance, we deal with most of them on a daily basis!
If you plan to apply directly to a non-bank lender then it is on you to do the legwork and shop around to find the best deal for you.
You may be comparing interest rates and fees between lenders, but this is only part of the equation.
Just as important is eligibility for their loan products. You can find the best car loan on the market, but if the vehicle you want doesn’t meet their criteria, or your credit score is not within their thresholds then you may not be approved.
Leaving you to try again at the next lender.
Pros:
- More flexible lending criteria, ideal for those with less-than-perfect credit
- Faster approval times and minimal paperwork
Cons:
- Interest rates can be higher than traditional banks
- Some non-bank lenders may charge additional fees
Through a Car Dealership
Most car dealerships will offer finance options on-site. Once you have found the car you want it is easy to get caught up in the emotion and desire and take your eye off the details.
While you can access some good deals through a dealership, there is also an incentive to get you into finance in the quickest way possible, and that may not always be the best deal for you.
Have you ever heard of the point of sale exemption?
Pros:
- Convenient one-stop financing at the point of sale
- Special deals and manufacturer incentives
Cons:
- Interest rates may be higher than banks or credit unions
- Limited lender options, reducing competitive choices
Finance Direct from the Manufacturer
If you are buying a brand new car then you may be able to access exceptional rates directly from the financing arm of the manufacturer.
While the days of the 2% rates are long gone in today’s market, a few years ago this was an option which is as close to free financing as you will ever see!
They just wanted to sell you the car and breaking even on finance was good enough.
Today you can still get a good deal but the rates have become far more normal.
Pros:
- Some of the best rates on the market
- Exclusive deals and incentives on new models
Cons:
- Only available for new cars or specific models
- Large purchase price and high repayments
- Strict eligibility criteria
Peer-to-Peer Lending
This is a relatively new source of borrowing for those wanting to buy a new car. However, the borrower is not going to have a different experience with a peer-to-peer lender than a traditional auto finance provider.
It is a different funding model for the loan but there is a company in the middle who manages the sourcing of the funds, and conducts the credit assessments.
Due to the diverse sources of funds, the lender may have more flexibility in their risk tolerance and the types of vehicles they will finance.
So it can be a good flexible option for borrowers.
Pros:
- More flexible approval criteria than banks
- Quick and simple online application process
Cons:
- Limited availability and funding sources
- May have additional platform fees
NILs Car Loan (No Interest Loans Scheme)
This is a not-for-profit initiative to assist people access a car who are genuinely in need. The application criteria are strict, the loan amounts are capped at $5,000, and you must still be able to demonstrate that you can repay the loan.
NILS is a service to the community and not an accessible source of a car loan for most people.
Pros:
- No interest or charges
- Designed to assist low-income earners
Cons:
- Strict eligibility criteria
- Loan amounts are typically small
- Limited to essential vehicle purchases
Car Loan Broker
Yes, we are biased in our assessment of this channel because we are an auto finance broker. However, after reading all of the above there are a number of clear benefits that a broker can offer.
Being able to place your loan application with 40+ lenders is the most obvious one. But this placement is about more than finding you the best rate, it is also about finding you the most likely source of a loan approval.
A declined application can hurt your credit score and will be scrutinised by future lenders. Getting it right the first time is one of the biggest benefits of using a broker.
Especially if you have less than perfect credit, have used payday loans or wage advances recently, or are financing a used car.
Pros:
- Access to a wide range of lenders
- Expert advice on finding the best loan for your circumstances
- Can negotiate better rates and terms on your behalf
- Most likely to find a lender that will approve your car loan application
Cons:
- There will usually be a broker fee payable
- Quality of service may vary depending on the broker
What is the Best Way to Finance a Car?
The best way to finance a car heavily depends on your credit history and the type of vehicle you are trying to finance.
Strong Credit Score
If you have a high credit score and squeaky-clean bank statements then all options will be available to you.
You are likely to get the best deal through a manufacturer financing loan if you are planning to buy a brand-new car.
Some banks and credit unions may also have competitive offers available to you.
Good Credit Score
Even if your credit score is mid to high, some banks may be off-limits for you if you have other factors impacting your application.
Your bank statements will be scrutinised and if there is evidence of:
- Payment reversals
- Use of wage advance products
- Use of payday loans
Or any other indicator that your cash flow may be under strain then approval will be more difficult.
If you have any of these characteristics then you will be better off speaking to a broker for guidance on what options suit your circumstances.
Bad Credit Score
If you have a low credit score then your options will be limited. However, a car loan is still attainable even with poor credit.
Gusto Finance specialises in credit-impaired consumer loans and can match you with a lender that is most likely to help. Click the inquiry button below to get in touch today!
Tips to Get the Best Car Loan Deal
Check your Credit Report
Before you apply for a car loan you should obtain a free credit report. Look for your credit score and any missed payments or defaults that may be listed there.
If there are any negative marks you should speak to a broker prior to applying directly to a bank or non-bank lender.
Compare as Many Lenders as Possible
Interest rates, fees, and loan terms vary widely between lenders. Comparing multiple lenders ensures you get the best possible deal tailored to your financial situation.
A broker can also help with this and compare over 40 lenders with the click of a button.
Fast Track the Above Steps with a Car Loan
A car loan broker has advanced technology and deep industry knowledge. This ensures that you can find a great deal quickly, and be matched with the lender most likely to approve your application.
Conclusion
A car loan is a large financial commitment over a number of years. There are some great deals available to those with a strong credit history, but outside of that, there are multiple channels that could lead to sub-optimal outcomes.
Your safest bet is to speak with a broker who can help you find the best deal available to you. As we have mentioned, there is usually a fee attached to this service.
However, the money you save by finding the best rate will see you come out ahead.
