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What is a Car Loan?

A car loan is a form of financing specifically for the purchase of a vehicle. Instead of buying the car outright with your own money, you borrow money from a lender and repay it with interest for an agreed length of time usually through monthly instalments.

Before shopping for car loans or taking out one, it is important to learn essential facts to successfully negotiate the best car loan deals and stay on top of your finances.

Types of Car Loans

types of car loans

A car loan can be secured or unsecured. In a secured vehicle financing agreement, your car is used as security for the loan. By pledging it as collateral, the lender has the right to repossess and sell the car if you fail to make the repayments as agreed.

Meanwhile, an unsecured car loan arrangement doesn’t require you to pledge your vehicle as collateral. However, this increases the risk for the lender of not getting their money back. To make up for the high risk, your car loan comes with a higher interest rate.

A car loan can fall under several types, depending on purpose and circumstance:

Chattel Mortgage

A chattel mortgage is a type of financing for a car or any other movable object like a boat or yacht that will be used exclusively for business purposes (or at least 50% of its lifetime). The lender grants the borrower the money to buy a commercial vehicle and places a "mortgage" over the car as security against the loan.

Novated Lease

A novated lease is a finance arrangement used with salary packaging. It simply means that your employer pays for your car lease and car running costs out of your salary package through a combination of pre-tax and post-tax salary deductions.

Personal Car Loan

This is a type of personal loan that you take out to buy a car. It can be secured or unsecured although most borrowers use their car as security for the loan to get a lower interest rate and better terms. Unlike other car financing options, you won’t be required to use your vehicle for a specific purpose. You won’t also need a third party to secure the loan.

Finance Lease

Available for individuals and businesses, this option involves the lender buying the car and leasing it to you as the borrower. You can use the car immediately with little or no capital outlay in exchange for monthly rental payments. You are also responsible for the car's maintenance. At the end of the lease period, you can either refinance, return, or buy the car for its residual amount.

Operating Lease

This works like a finance lease where the lender purchases the vehicle and then rents it to you as the borrower. However, the lender retains ownership of the car and is responsible for its maintenance. You won't have the risks associated with ownership and have no residual value liability. At the end of the term, you can choose to continue renting the car, buy it, or change to a newer vehicle model.

Getting Your Car Loan Approved

getting your car loan approved

Before shopping for your new vehicle, it is important to get a car loan pre-approval.

A pre-approval is a conditional approval from a lender. It is awarded in the form of a document, which states the amount that the lender is willing to lend you, as well as the estimated interest rate and loan term. Although it does not guarantee an unconditional approval, it is a step towards that direction. You can use it to shop for cars, as well as a budget reference before shopping for cars.

Getting preapproved before walking into a dealership puts you in the driver’s seat during the car-buying process for several reasons:

  • You will have an idea of how much you can borrow.
  • You can focus on the car that you can afford.
  • You’ll have greater negotiating power.

Your Credit Score Matters

Just like in other types of loan, your credit score greatly affects your borrowing power. Before getting pre-approved, a lender will check your credit history and rating to have an idea of how you manage debts. If you’ve been responsible with your previous loans, it would reflect on your credit profile. It would also result in a good or excellent credit score.

The higher your credit score, the higher your chances of getting approved for a car loan with a low interest rate and better loan terms.

However, if you have a history of loan defaults, making late payments, maxing out credit cards, and bankruptcy, your credit score would be low. A very poor credit score will result in getting rejected for a car loan or getting one at a very high interest rate and unfavourable terms.

The good news is that a poor credit score can be improved. If you practice good money management habits, such as paying your bills on time, minimising your debt-to-income ratio, and keeping your credit utilisation low, you can rebuild your credit profile and increase your credit score. This would eventually improve your chances of getting approved for a car loan.

Before applying for a pre-approval, review your credit report. If you find incorrect or outdated information on your report, file a dispute to the credit reporting bureau. If your credit score is low, you might want to delay your car loan application and work on improving your credit score first.

Aside from your credit score, there are other important factors that lenders look into when considering your car loan approval. These include:

Debt-to-income ratio (DTI)

This is the measure of your overall debt compared to your income over a given period. Lenders use this to assess your capacity for repayment on a new debt. If you have a high income but high DTI, a lender may only offer a lower loan amount and less attractive terms than you would otherwise receive with a low DTI.

Size of down payment

The amount of money you provide as down payment for your loan can reduce your loan amount. A large down payment means less risk for the lender because it suggests that you’re likely to make repayments on time and complete your loan on its term to avoid losing the car and the money you put into it upfront. As a result, the lender will offer you a car loan with more favourable terms.

Length of loan

The total cost of your loan if influenced by the length of time that you will be making the repayments. The more years you’ll be repaying your loan, the longer the lender will have to wait to get their money back. This is why they often reward those who take out a shorter-term car loan with a reduced interest rate.

Age of vehicle

Taking out a car loan to buy a new car has a lower interest rate than purchasing a used vehicle. This is because a new car has a higher resale value. In the event of repossession, a lender can sell it for a much higher price to recoup their losses.

Comparing Interest Rates

comparing interest rates

It is essential to shop for car loans and compare interest rates before deciding to take out one. Knowing the average interest rate that the lenders are charging for a car loan will put you in a stronger negotiating position and helps you find the best deal. A car loan with a low interest rate and great terms can help you save a significant amount of money in interest.

You can use an online car loan calculator to conveniently compare car loan interest rates. Aside from providing a quick calculation of how much you can afford, this tool helps you get a good estimate of your borrowing costs.



A car loan is a big financial responsibility. While purchasing the vehicle may be easy because of the financing, the repayments that you will make for several years can greatly affect your finances. This is why it is important to understand and determine how much you’ll be repaying even before taking out a car loan.

When a lender approves you for a car loan, they will give you the money to pay for the vehicle on an agreement that you will repay it back with interest over an agreed-upon period. Your car loan payments are usually made in the form of monthly instalments. The amount of each repayment is determined by your loan amount, interest rate, and length of your loan term.

Loan Amount

This amount will depend on the price of the car that you’re buying and your down payment. If you still owe money on your current car or if you have a car you’re trading in, it will also affect your loan amount.

Interest Rate

Your monthly car payment not only covers the loan’s principal but also the loan’s interest and fees. If you’ve taken out a car loan with a high interest rate, you will be paying more every month.

Loan Term

The term of your car loan affects your monthly repayments. If you’ve taken out a shorter loan term, there will be less time to settle your loan obligation so your repayments will be higher. On the other hand, if you have a long-term car loan, your repayments will be lower because they will be distributed into a long time-frame. However, you will be paying more in interest.

The 5 Step Positive Process

our process submit quote


We'll call you to gather additional information and your documents

our process lender submission


We'll assess your application and submit your loan application & documents to the lender for approval, typically on the same day

our process find car loan


You can go look for your new/used car

our process vehicle sourcing


We'll help you find your car. Talk to us about our complimentary vechicle sourcing service

our process pre-approval call


We'll send you your final loan documents to complete sign, then onto the lender to review and process payment

our process settlement


Congratulations! Your loan has settled. The seller has been sent their money! It's time to pick up your car!

Positive Lending Solutions is rated Excellent with a score of 4.86 for customer satisfaction by 1185 customers on Trustpilot


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Frequently Asked Car Loan Questions

How soon

How soon will my loan be approved?

The sooner you get in touch, the sooner we can help you to get your car loan approved. We know how important it is to you to get your car loan quickly and can often offer pre approval within just 3 minutes.

You'll get a quote within an hour of your application and from there, the journey has begun to getting your car loan approved.

How is my loan application

How is my loan application processed at Positive Lending Solutions?

Online or on your mobile, complete one of our quick quote forms to get a rapid online quote. You'll hear from one of our lending managers within an hour (during business hours) to confirm and deliver your quote. No waiting, no delays.

We know the car loan process can be confusing – that's why we're here to guide you through your application and approval process.

It starts with you filling out our Quick Quote online. We'll then call you directly to discuss your needs and get all the details we need to find the best car loan for you.

Positive Lending Solutions will submit your application to the lender on your behalf and we'll call you when it's pre approved.

The next step is for you to work with us to find the car that you want. Once that's done, we'll email your loan documents to you directly.

When you've sent everything back, we'll check it over and send it to the lender for settlement. After this, it's time to get your car – the end of one journey and the beginning of many more!

How many lenders

How many lenders does Positive Lending Solutions compare?

We compare over 20 lenders when carrying out a car loan comparison for you. This means we'll be sure to find the best car loan option for you and to find the lender who can best suit your individual needs.

How much can I borrow

How much can I borrow?

There's no set amount when it comes to car loans with Positive Lending Solutions. We look at a variety of factors specific to you such as your overall income and whether or not you have any type of deposit.

We want to find the right car loan for you that you'll be able to pay back in full without experiencing financial strain.

How do repayments work

How do repayments work?

We'll work with you to discuss your financial situation and find a car loan that works for you. Generally, repayments are made monthly, however these can sometimes be done fortnightly or quarterly.

The most important thing is that repayments are made on time and in full. We work with you by sending reminders and ensuring you have the best chance of always making your repayments for your car loan.

Can I pay off my loan early

Can I pay off my loan repayments early?

This will depend on the specific car loan that you have. Some lenders allow you to make repayments early whereas others will have set early repayment fees, which you'll need to pay.

If you are thinking of making loan repayments early, speak to us to find out how we can help you find the car loan that will best suit you.

How can I apply

How can I apply for a loan?

Contact us today. Our expert brokers are on hand to help you apply for a car loan that will suit your needs. Either call us directly on 1300 722 210 or click the button below to fill in our easy to use Quick Quote online to start the process now.

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