Should I get a loan for buying a used car?

Should I get a loan for buying a used car?

Posted 15 July 2020. Categories: Personal Finance.

Cars are vital in many places in Australia. While public transport is good in some cities, it's very limited in others and non-existent in many parts of regional Australia. 

If you need a car, but don't want to pay for a new model, getting a car loan for a used vehicle can be a quick way to get you on the road. 

Australian car stats

At the start of 2019, government statistics showed there were 19.5 million registered motor vehicles in Australia. With a population of 25 million (including children), that's a huge number of cars. 

Of those cars, the company with the most registrations was Toyota. 

The price of a new Toyota:

If you're looking at buying a new car, they don't come cheap. Currently on the Toyota website, new cars are available in NSW for:

  • Cars: $18,687 (Yaris Ascent) to $102,271 (GR Supra GTS)

  • SUVs & 4WDs: $33,318 (C-HR) to $132,768 (Landcruiser 200 Sahara)

  • Utes & vans: $28,319 (Hilux WorkMate) to $140,966 (Coast Deluxe)

Affording a new car

Even at the lower end of the scale, a car for $18k is out of reach for most Australians. 

According to the ABC, the median income in Australia is $48,630 before tax (roughly $42,000 after tax). It would take an average Aussie almost six months to earn the cost of a Yaris Ascent, and only if they spent no money in that time. And that's for the cheapest new model Toyota available. 

So how are so many people driving Toyotas? They're either getting financial help (such as a car loan) or buying a second-hand model. 

The cost of used cars in Australia

Looking on used car sites like Cars Guide and Car Sales, there are dozens of Yaris cars available for $5,000 or less, including the types generally more expensive than the Ascent.  

These are all cars that have been on the road for a while, so they're unlikely to be in the same pristine condition as when they first left the dealership, but in most cases they're roadworthy and they've got plenty of life left in them. 

Not everyone has a spare five grand sitting around though. And if you need a car for work or to get to a job interview, having that money available can make a huge difference in your life. 

Getting a loan for a used car

One of the big problems with getting a loan for a used car is that many of the big-name lenders won't allow it. For example:

Commbank's secured car loan is only available for new cars or cars that are less than five years old. Suncorp is slightly more lenient with cars up to seven years old. 

Another stumbling block may be the amount of money available (or required) that you can borrow. For example, Bank of Queensland has a minimum limit of $5k, which isn't always suitable. 

Another option is dealer finance, however these often have restrictions too. They may be tied to new cars or specific models and they might include a balloon payment – a large payment that's due at the end of the contract. 

However, not all car loans are created equal. On Harmoney, car financing is available from $2,000 to $70,000, with interest rates from 6.99% and no restriction on what type of vehicle you can buy. 

Why get a car loan?

The first reason is often the most important – the sooner you have the money, the sooner you can buy a car. 

Whether you need it to get to work, for everyday driving or a family vacation, having your own set of wheels is important for many Australians. 

Having the money you need before you walk into a dealership is also powerful. If you can pay for a car on the spot, it gives you a stronger negotiating position and you may be able to get a better deal than you would have otherwise.

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We write these articles for you, our Harmoney borrowers, to be, what we hope, are helpful tools. The information, including rates, is current at the time of posting and is designed to be a general guide only. Any advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.