Used car financing options
By Stephen Corby · 24 Jun 2025
Financing a used car in Australia often comes with more strings attached than financing a new one and usually a higher interest rate to match. That’s not to say you can’t get a good deal on a used car loan, just that you need to be prepared for lenders to reduce their exposure by tacking on an extra premium to cover their risks.And really, you’re all in this together. You might well be buying used rather than new to save some money, but in doing that you’re obviously accepting a level of risk yourself.Used car loans usually run anywhere from one to seven years, so you can stretch your repayments well past the point where the car still smells like someone else’s dog. A longer loan term does mean smaller monthly repayments, but it also means paying a lot more in interest over time (you up the back, prepare for a math lesson).For instance, borrowing $10,000 at 6.5 per cent over three years will set you back about $306 a month, with $1003 in total interest. Stretch it to seven years and your monthly repayment will drop to $148, but you'll pay more than double the interest ($2398).That’s because interest has more time to accumulate the longer the loan drags on, even if the rate stays the same. The devil is in the retail detail with insurance companies.Current used car loan interest rates average between six per cent and 10 per cent, depending largely on your credit history and the age and condition of the vehicle you’re buying.Unsecured personal loans tend to have even higher rates (around 10 per cent), while financing through a credit card can attract rates as high as 20 per cent (I’ll let you do the interest math yourself there, but here’s a tip, it hurts).As tempting as it might be, it's important to remember the lowest advertised interest rate might not be the best deal overall, as it could involve hidden fees or restrictive conditions, like balloon payments (unlike real balloons, these are not fun and hit with a more physical bang).The best way to cover yourself is to refer to the comparison rate, which includes most fees and charges, for an accurate cost assessment.Here’s a breakdown of popular used car financing options.Secured car loans from banks or credit unions usually have the most favourable terms for used car financing. Because these loans use the vehicle as collateral, lenders feel more secure and usually provide better interest rates.However, there are often age and condition restrictions for eligible vehicles. Most lenders want a car that will still be less than 12 to 15 years old by the loan's end, and many cap it at seven years old. That’s partly because many vehicles are out of warranty by then, which increases the risk of major repairs during the loan term.While many loans allow early repayments to reduce interest costs, some fixed-rate options come with exit fees. And finally, if the car is written off or stolen, you’re still liable for any remaining loan balance, even if insurance doesn’t fully cover it.Just let that sink in for a moment - paying interest on a loan for a car you don’t even drive any more.Dealer finance can seem like a no-brainer due to the convenience and quicker approval times. However, that convenience can come with a markup. Dealer-arranged loans can have variable interest rates, which are sometimes competitive with bank loans but often higher, due to dealer margins or hidden fees.Always compare dealer finance carefully against independent lending options and check the comparison rate to avoid unexpected costs. This is why we have an internet.Unsecured personal loans can be a real lifesaver when your dream car is too old, too cheap, or listed as a private sale. These loans don’t use the car as collateral, which means you duck all the age and value limits, and you can also spend the money however you like.But the cost of that extra freedom is that interest rates for unsecured loans typically sit between seven per cent and 12 per cent, and can climb much higher for lower-credit borrowers.Lenders will also scrutinise your credit history and income more closely, since they can’t fall back on selling the car if things go pear-shaped. Make sure you compare comparison rates, not just advertised interest, to get the full picture of what you’ll owe.Using a credit card for vehicle financing is usually a terrible idea unless you have extraordinary financial discipline, but under very specific conditions, it can work.Most credit cards carry interest rates of 18–22 per cent, but some offer zero per cent introductory rates for a short period. If you close the balance before that window closes and avoid any credit card surcharges on repayments, you’re in the clear.But if you have any leftover balance once the introductory period ends, it’ll incur interest backdated to day one, and you’ll be paying through the nose.Leasing – usually via a novated lease with your employer – can be a tax-savvy way to finance a used car. Payments are deducted pre-tax, which can reduce your taxable income, cut GST on running costs, and even exempt you from FBT if you're leasing a qualifying electric vehicle (EV).That said, most providers won’t touch a car older than seven to 10 years at lease start (or 12–15 years by lease end). And while bundled servicing, rego and insurance can simplify budgeting, you’re often locked into approved providers and may face higher costs for maintaining older cars. Plus, if you leave your job, you’ll need to take over the lease, transfer it or sell the car.Ultimately, your best second-hand car finance option and repayment plan will come down to several factors, starting with your credit score. Stronger credit opens the door to better rates, particularly with secured loans.It’s also important to consider your budget and cash flow realistically. Shorter loan terms cost less overall but require higher monthly payments, while longer terms are easier monthly but costlier in total. The vehicle’s age could also limit your options to unsecured personal loans or dealer finance.If you want to improve your chance of approval, start by checking your credit report and fixing any errors before applying. A saved deposit is another great tool to have in your negotiation arsenal, and can lead to lower interest rates.You can also shop around and get pre-approvals from multiple lenders, so you’ve got some bargaining power. Finally, if your credit score is a bit shaky, bringing a co-signer or guarantor could strengthen your application.This material has been prepared for information purposes only. It should not be taken as constituting professional advice and you should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.