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Used car finance and loans
You can still get a car loan if your vehicle is secondhand. Make the right choice with our guide.
Looking at how you can finance the purchase of a used car? You might want to consider getting a used car loan. This guide will help you understand everything you need to know about buying a second-hand car with used car finance.
Low rate used car loans available on Finder
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How does a used car loan work?
A used car loan works the same way as a new car loan. It uses the vehicle you’re purchasing as security, and in return, you receive a competitive interest rate.
You can either apply for your loan first and get pre-approval, so you know how much money you have to spend on a vehicle, or you can find the car you want to purchase and then apply for a loan.
Either way, the lender needs all the vehicle’s details before it can entirely approve you.
Lenders have restrictions on the type of car you can finance, for example, you may not be able to fund a vehicle which is over twelve years old at the end of the loan term.
Repayment flexibility differs between lenders, but you can typically select weekly, fortnightly or monthly repayments. You may be able to repay your car loan early without penalty or make additional payments without additional fees.
If you receive approval for a loan, the lender may prefer to pay the car seller directly or may send the funds to you to pay the seller. Discuss this with your lender before you apply.
See our tips for buying a used car.
3 used car finance options and their differences
What type of finance is available for purchasing a used car?
- Secured loan. Certain vehicles, under a few years old, may qualify for this type of loan, which usually offers the most competitive interest rates.
- Unsecured car loan. These loans have higher interest rates, but fewer restrictions attached to them.
- Dealership finance. Car dealers will likely offer some attractive rates with their chosen finance partner. However, often these agreements are subject to hefty deposits and balloon payments, which require you to make a final payment of several thousand dollars at the end of the loan term. This way, the repayments are smaller and seem cheaper.
How to find the perfect used car loan
Here’s what you need to consider when shopping for a used car loan:
- Interest rate. Generally speaking, you want as low an interest rate as possible. The lower this number, the more you’ll save. The difference can be quite stark. Suppose you want to borrow $10,000 over 3 years to purchase a second-hand car. If you took out a loan with an interest rate of 4.5%, the loan would cost you $709 in interest. If the rate was 7%, you’d pay $1,116 in interest, a difference of $407. Due to the potential risk of a used car failing prematurely, interest rates will likely be higher for a second-hand car.
- Payment flexibility. It’s always nice if a loan fits in with your budget. If you get paid weekly, you’ll no doubt prefer a used car loan lender that offers weekly repayment schedules. If you’re paid monthly, you’re probably more used to making larger payments, 12 times a year.
- Loan term. The longer you borrow the money over, the more potential risk and the more you’ll spend in interest. On the flip side, the repayments will be smaller, as the cost is spread across a longer period. For example, a used car loan with an interest rate of 4.5% over 3 years costs $709 in interest, with monthly repayments of $297. Over 5 years, the monthly payments are just $186, but the amount paid in interest jumps to $1,186, or a $477 difference. Deciding on how long to take out your used car loan comes down to balancing affordability and expenses.
- Charges and fees. Many loans require application fees, which can vary from $200 to $800. Other loans may charge a service fee, which could be as much as $10 per month. As a result, you need to factor in these costs. A loan with a $10 monthly service fee, over 3 years will cost you $360. However, if the loan has a low application charge, it could still work out as the most cost-effective solution for you.
- Vehicle criteria. This seems obvious, but you’ll want to pick a lender that’s prepared to offer you a used car loan for the age and model of vehicle you’re looking at.
- Pre-approval. This is a big one if you’re buying a used car. Conditional pre-approval means you know how big a loan you can get. This puts you in a great place when haggling.
- Early payment fees. It’s nice to have options like the ability to pay back your used car loan early, without termination fee penalties (for example, if you traded your old car in for another and want to clear the outstanding balance, or you come into some money).
Pros and cons of buying a used car
| Pros | Cons |
|---|---|
| If you (or someone you’re acquainted with) knows a bit about cars, you can save yourself tens of thousands of dollars purchasing a used vehicle | Without doing your research, you could buy a lemon with premature failures, defects or dodgy repairs |
| Less likely to encounter a salesperson using high-pressure selling strategies | Takes time browsing the Internet and picking up the phone to find a car you want to test drive |
| No waiting for a car to be built at the factory, you can purchase a car there and then | Previous owner might have neglected to maintain the car or driven it hard |
| You could get a hybrid or electric car for a significant discount | Car could be out of factory warranty |
| Buying private cuts out dealer, meaning you’re not paying a margin to cover their overheads | Limited by what’s currently on used car market |
| Used high-end models could be within your budget | Tighter financing conditions |
| Sellers expect to haggle and negotiate which results in a lower price | Certain vehicles might need a roadworthiness certificate or safety inspection |
| Lower value can mean lower car insurance costs |
Used car buying money-saving tips
As well as shopping around for a great used car loan deal, you can save yourself even more money with these tips.
Consider less popular brands and models
The bestselling new cars will almost certainly become popular used car models. As a result, sellers can set their prices accordingly. Rather than getting fixated on one brand or model and trim, be open to rival models. You’ll benefit in several ways.
First, car manufacturers that are trying to compete with a sought-after and established marque might introduce longer warranties, better standard specifications and even drop prices. You could swoop in and take advantage of this by purchasing the rival brand on the used car market.
To save money, buy privately
Used car dealers are a middle party. Yes, they might offer attractive things like short-term warranties, but in reality, they can add a couple of grand onto a car’s sticker price to cover their costs.
If you have a car enthusiast friend or family member, take them along to a private sale and you could end up with a much cheaper used car. If you don’t know a car expert, consider paying for a pre-purchase inspection, which can help you avoid buying a lemon.
Haggle
Some people hate haggling, it makes them cringe. Most second-hand car dealers and private sellers will expect you to at least try. Some may even mark their car up a little, with the expectation that buyers will try to knock them down. Remember, this is a business transaction, so stay friendly and emotionally detached from the car.
Haggling doesn’t have to become a verbal slanging match. You can be polite and negotiate—sometimes even being a bit cheeky might get you some money slashed off the deal. If you smile while you’re doing it, that goes a long way. A common technique for bartering is to simply point out things you’re not happy with, for example the tyres are heavily worn and need replacing, the windscreen is scratched or there are stone chips in the paint.
If you are sincere and genuine, a lot of sellers will relent and meet you halfway. Spend some time researching the car model; find out if it needs any major scheduled work soon like timing chain/belt replacements or complete fluid renewals.
Which used car should I buy?
There are hundreds of different models on the used car market, so you might find things overwhelming.
The first and most important decision is, what kind of vehicle are you looking for? Each have their own merits and downsides.
| Car body type | Pros | Cons |
|---|---|---|
 Light car |
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 Small car |
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 Medium car |
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 Large car |
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 Sports car |
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 Small SUV |
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 Medium SUV |
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 Large SUV |
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 People mover |
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 Utility |
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 Van |
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Common questions we’re asked about financing a used car
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