Bad Credit LoanWhat Are the Types of Car Loans in Australia?

What Are the Types of Car Loans in Australia?

November 11, 2019

In Australia, the average price of a car is well over $25,000. With the high cost of living, this is not an amount many Aussies can fork out at once for a car: remember the average Aussie saves around $5100 per year so that would take a good 5 years to save up for new wheels! Well, thanks to car loans, many can get financial help to buy their desired vehicles right away.

Now before applying for any loan, it will help to understand the different types of car loans in Australia to help you pick the right option. Comparing the terms, fees, eligibility criteria, rates, and features is the ideal way of getting the best deal.

Well, here are the different types of car loans you need to know.

Standard Car Loan

This is the typical type of loan offered by banks, credit unions, and standalone lenders. It’s the simplest loan option, and you can borrow money for a new or used car. You have two options: secured and unsecured loans.

Main Benefits of This Type of Car Loan

  • Flexible terms for repayment
  • Fixed-rate offers predictable repayments over the agreed period
  • Low-interest rates when the car secures the loan

Commercial Hire Purchase

For this option, a financier buys the car and rents it out to the buyer over a given period. The buyer can be a business or an individual. The buyer then pays the loan for a fixed period, and they can keep the car once they’ve completed repayments.

Main Benefits of This Type of Car Loan

  • You can claim depreciation and interest charges in tax deductions
  • Predictable and flexible repayments with terms of 2 to 5 years
  • You can claim Input Tax Credits if you’re registered for GST
  • Automatic ownership after repayment

Finance Lease

If you’ve been struggling to get approval for a standard loan, then a finance lease is your best bet. In this case, the lender buys the car and leases it to you. You’ll have to pay a monthly fee for the vehicle.

At the end of the lease, which can be about three to five years, you’ll have the option to upgrade, return, or buy the car.

Main Benefits of This Type of Car Loan

  • You can choose your term
  • Upfront loan costs
  • Repayments are tax-deductible, but you pay GST
  • Low-interest rates as the car is used as the collateral

Novated Lease

In a novated lease, there are three parties involved: the borrower, their employer, and the lender. Your employer is responsible for paying the lender. So, repayments are taken out of your pre-tax salary by your employer to pay the loan.

You have the option of buying the car at the end of the lease. However, you have to meet other costs of the loan, such as insurance and registration.

Main Benefits of This Type of Car Loan

  • Pay no GST on the price of the car
  • Freedom to choose your preferred vehicle
  • The vehicle is yours to use with no restrictions
  • Fixed repayments over the term of the loan

Operating Lease

This lease is the same as a finance lease to some extent. The lender buys the car, and you rent it. The only difference is that the vehicle will be in the lender’s name instead of yours. Also, the lender will be responsible for the car’s maintenance, among other costs.

Main Benefits of This Type of Car Loan

  • Rentals are tax-deductible
  • Low administrative costs of using the car
  • No risk of vehicle depreciation
  • Fixed repayments over the agreed loan period

Chattel Mortgage

A chattel mortgage is usually a fixed loan. When you get approved, you get the full borrowed amount to buy the car. The car is used as security in case you default. There might also be a residual payment at the end of the term.

Main Benefits of This Type of Car Loan

  • Lower interest rates since the car secures the loan
  • You can claim GST immediately
  • Fixed repayments, making them predictable
  • Depreciation and the interest portion are tax-deductible
  • Flexible terms

Final Thoughts

If you’ve got plans to buy a business or personal vehicle, these are loan options you can consider to finance the purchase. Take the time to examine the options and compare different lenders’ rates to make an educated choice.

Be sure to determine if you want a fixed or variable rate of interest. Calculate your monthly expenses and figure out how much you’re willing to spend on repayments. This way, it will be simple to manage your loan.

Typically, the right car loan is one that offers flexible terms, allows you to get the car you want, and has affordable repayments.


  • Roland is the founder of Credit World Pty Ltd and a leading financial expert in Australia. He has extensive knowledge on car loans in Australia. Known as a car loan expert, Roland has been featured on TV and in various publications. He started in finance comparison in 2005. Now a 17 year industry veteran.

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