How to Finance a New Car Purchase

By Alexi Falson on 19 Apr 2022
image for How to Finance a New Car Purchase Stepping up to your next vehicle can be the most exciting and simultaneously nerve-wracking time of your life, especially when you consider the costs of a rushed or uninformed purchase.

It’s imperative that you prepare yourself for the process, which is why we’ve put together a helpful guide on how to finance a new car purchase. 

Buying a new car with the help of vehicle finance is extremely common in Australia, with as many as one in five Aussies opting to purchase their vehicle through either a car loan, a novated or standard lease, dealership financing and personal loans. There are a number of things that are either forgotten in the heat of the moment, or that Australian consumers are unaware of when it comes to financing a new car purchase, so let’s unpack the process as a whole to help point you in the right direction. 

Considering just how high the stakes can be, it’s essential that you prepare yourself for the process of financing a new car purchase, so with that in mind, let’s dive in. 

How to Finance Your Car 

When you’re looking to finance a new vehicle purchase, there’s a few important aspects of the transaction that you want to have under control before continuing with the process. Regardless of which specific type of loan, finance or leasing option you’re looking at, the process as a whole remains relatively the same. It begins with the application for credit, where you ask a lender for a sum of money toward that purchase, and provide evidence of your employment status and eligibility to pay the loan off on their terms. 

From here, the loan is either approved, denied, or more information is requested before they can process the loan. Once it is approved, the funds will either be transferred directly to the dealership that you’re purchasing from, or directly to the seller in the case of a private sale. If you’ve obtained finance via an unsecured loan, the funds may be transferred to you directly to pay the seller. 

As a reminder, we’ve put together a comprehensive checklist designed specifically for Australians looking to purchase a new car, which could be a helpful place to start on your journey toward purchasing a new car with vehicle finance. 

Credit History 

One of the major influences of whether or not a lender will agree to finance your purchase of a new vehicle is your credit history. Your credit score, otherwise known as a credit rating, is a number assigned to you personally that reflects your capacity to borrow money and pay that money back in the specified timeframe. 

Quite simply, the higher your credit score in the eyes of lenders, the more borrowing capacity you’ll have, and you’ll also be able to secure more attractive rates for your loan. To find out more about how a credit score impacts your ability to secure vehicle financing, click here to read our comprehensive guide

Consider Your Car Finance Options

Now that we’ve covered some of the foundations of applying for vehicle finance, it’s time to look at your different options specifically for financing your purchase of a new car. Australian consumers are spoilt for choice when it comes to lenders, which is why doing your research ahead of your purchase is an absolute must. While dealerships are more than happy to organise finance on a new vehicle for you on the spot, it’s well worth exercising your options ahead of signing the dotted line inside the dealership.  

Understand the Different Loan Types and Terms 

Now, to the main event, comparing the different types of loans out there on the market available to the Australian public to purchase a vehicle with the help of finance. The two most important things to consider here are whether or not you’re opting for a variable or fixed rate loan, as well as whether the vehicle finance will be through a secured or unsecured loan.

One of the major questions you’ll face is whether a variable rate or a fixed rate vehicle loan is your best option. As the name suggests, in a variable rate car loan, the amount of interest that you’re subject to repay fluctuates depending on the state of the market, and the official interest rate set by the Reserve Bank. While variable rate car loans have a number of benefits when market conditions are good for lenders, it’s worth noting that they can leave you exposed to rising interest rates when the market changes course. 

A fixed rate car loan, on the other hand, protects you from these market forces, which allows those financing the purchase of a new vehicle to get a clear idea of their payment terms and schedule, and makes budgeting a straightforward task. The downside of this predictability is that fixed rate terms are commonly higher than their variable counterparts. 

Now, it’s time to unpack the concept of secured and unsecured car loans. A secured car loan is one of the most cost-effective means of securing vehicle finance, but it isn’t without its risks. For example, when issuing a secured car loan, the lender registers your vehicle with the Australian Personal Properties Securities Register, which in turn, makes the vehicle a form of collateral in the event you fail to make your repayments. While secured car loans offer some of the most attractive rates for buyers, technically, the lender remains the owner of the vehicle until the balance is paid in full, and the car can be repossessed after failing to meet your obligations. 

An unsecured car loan, on the other hand, doesn’t give the lender the same amount of power over the asset when compared to a secured loan. As a result of this, however, the terms and interest rates can be less attractive than their secured counterparts, although they do provide the borrower with more wriggle-room when it comes to how you use your loan.  

Other avenues for vehicle financing include novated leasing, which you can read more about here, a chattel mortgage, car hire purchase and a standard car lease. 

Financing Your New Car With OnlineAuto 

If you’re looking for an easy, streamlined and supported means of securing vehicle finance for your next car, get in touch with us here at OnlineAuto. Using our online portal, we can put you in touch with our team of specialised car finance consultants that will give you all the information you need, and help support your application through every step of the process. 

OnlineAuto has access to a wide range of Australian lenders to help secure you a vehicle finance deal with the best possible terms and interest rates, and will help to process your application in the shortest possible time. Simply send over your documentation and we’ll do the work for you. 

Checklist for Financing a New Car Purchase

  • Check your credit rating and learn how this impacts your borrowing capacity and loan terms 
  • Research different lenders 
  • Get a free quote from OnlineAuto
  • Compare different vehicles on the market; consider plate clearances to save yourself thousands 
  • Apply for pre-approval 
  • Compare dealership finance offers with different lender options 
  • Keep your loan term as short as possible 
  • Place the biggest possible deposit down for the vehicle 
  • Handle any on-road costs and taxes in cash

Is Financing a Car a Bad Idea? 

Financing the purchase of a new car is not a bad idea, so long as you’ve done your research and you’re not rushing into the process. It’s worth noting that lenders have a list of requirements that you, the borrower, are obligated to meet, and in the case of a secured loan, the vehicle is often held as collateral in the event you fail to meet those obligations.

As a result, it’s essential that before you finance your purchase of a vehicle, you’re aware of your limits in terms of borrowing capacity, the terms and repayment schedule of the financing available to you, and to be aware of the balloon payment at the conclusion of the loan.

What is the Best Way to Finance a Car? 

Because of the simple fact we are all in different financial positions, it’s impossible to say definitively what the absolute best way to finance a new car purchase is. There are, however, some important considerations that can help you make the most informed and sensible financial choice, which includes comparing offers from different lenders, and opting for the shortest possible payment period that will help you reduce paying extra fees and residual interest over a longer loan period. 

As a reminder, one of the best and most streamlined means of purchasing a new vehicle with the help of car finance is with the help of OnlineAuto. We’ll connect you with vehicle finance specialists that will help you through the process, and give you a range of options for vehicle finance. For more information on our vehicle finance services, click here.

Is it Smart to Finance a Car? 

Financing a vehicle can be a super-effective means of building a robust credit rating that shows future lenders that you have built a habit of repaying your loans on time.

Lenders often prefer customers that can show proof of managing multiple lines of credit, whether that’s a vehicle loan, credit card or mortgage, which helps to build your credit rating and potentially save you thousands with lower interest rates for any future loans.


Alexi Falson

Alexi is an automotive journalist and road tester hailing from Byron Bay. He has an affection for both cars and motorbikes, a great admiration for the simplicity of old-school engineering, and a fascination of new technology making its way to modern cars. When he's not road testing, you'll find him surfing, hiking or helping people find their dream cars.

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