How Does Car Finance Work In Australia

“How does car finance work in Australia” has been a question on the mouth of many Australians who wish to finance their car.

As at March 2021, a live survey by Finder’s Consumer Sentiment Tracker indicates that about 14% of Australians have car loans. That’s a huge number and that also tells you that it’s completely safe to go for a car loan to purchase your dream car or any other car you so desire. Hence in this write up, I’m going to answer the question of “How Does Car Finance Work in Australia”.

Who wouldn’t want to own a car of their own? Aren’t you tired of using that old car of yours that always abandons you on the highway? How about your friends kids who always look at you like they are doing you a favor for joining their dad’s car? Etc. well the answer is simple; “virtually everyone” will want to own a car of their own so they can easily move around whenever they want to.

However, coming up with the lump sum needed to purchase that dream car or that car you desire can be very difficult. That is where car finance comes in.

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What is Car Finance?

Car Finance is simply loans or financial products given by auto loan providers or car dealerships to borrowers to enable them purchase a car.

You can either finance your car by getting a car/auto loan from a bank, credit union or any auto loan provider. And you could also decide to go for in-house car financing where you wouldn’t have to deal with a third party (bank).

This loans or financial products enables you to buy your dream car and pay for it usually in monthly installments over a period.

How Car Finance Works

As mentioned above, car finance is that loan that borrowers go for in order to purchase a new or used vehicle. These loans that they go for in order to purchase their dream car comes at a cost although it is largely beneficial to the borrower in the long run provided he/she goes for a good deal.

A car finance can be obtained from either a dealership, bank, credit union or an online financial institution. Whichever way you choose to finance your car, you will hear stuff like APR, Loan term, loan due date etc. This tells you that they all work virtually the same way.

The loan you go in for to finance your car normally come with interests which you pay for over an agreed period of time. Interest on car finance is usually calculated using simple interest hence avoiding the issue of having to pay more as the loan progresses.

However, note that factors such as your credit score, income level, employment situation, the Reserve Bank of Australia’s cash rate etc. can determine how much a lender charges as interest.

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After your loan request is approved by the lender after doing the necessary checks and you meeting their eligibility requirements, the amount is disbursed to your personal account or directly to the dealership. A payment schedule will be generated which shows you the amount you will be paying each month. The schedule also shows how much of your monthly installments goes into the servicing of principal and then the interest.

Borrowers are usually tempted to go in for longer term loans. However, you should also note that, the longer the loan term the higher the cost of the loan although it will mean that you pay less in monthly installments.

The other thing about car finance also is that, in-house car finance (i.e. When you decide to finance your car at the dealership) normally have shorter loan terms which also means you will pay more in monthly installments.

Now having said all that, the final decision lies with you hence you should carefully examine and go for which car finance is best for you.

Factors that determine how much you pay in installments

  • Loan amount
  • Loan term
  • Interest rate


  • An average car loan size in Australia is roughly $31,738.40 according to a research conducted by an auto loan provider, Plenti. According to its findings, only 30% of borrowers purchase a new car whereas 70% purchase a used car.
  • A survey conducted by Finder’s Consumer Sentiment Tracker revealed that, 10% of car loans clients live in South Australia, 14% in Western Australia, 15% in New South Wales etc.
  • Most popular car brands in Australia as at 2020 are Toyota, Mazda, Hyundai, Ford, and Mitsubishi in that order.

READ ALSO: How Do Car Finance Rates Work


Q1. What is the average car loan in Australia?

An average car loan size in Australia is roughly $31,738.40 according to a research conducted by an auto loan provider, Plenti. According to its findings, only 30% of borrowers purchase a new car whereas 70% purchase a used car.

Q2. How do I get a Car Loan?

Getting a car loan isn’t that difficult. You can get a car loan/ finance from a bank, credit union, online financial institution or a dealership. All you have to do is to visit a lender of your choice to begin the process.

Q3. What kind of information will be collected when I apply for a car loan?

The basic information that will be needed when applying for a car loan include; name, SSN, residential address, employment details, email address, income etc.

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