Car Finance Rates - 3 Key Reasons Why Used Cars Can Attract Higher Interest Rates

1. Used Cars are Harder to Value

As a car gets older, it’s harder to work out exactly what it might be worth. A new car has pretty straight-forward valuation, based on its odometer reading and year of manufacture.

With an older car, there’s a greater chance it’s been in unreported accidents or that it could have hidden mechanical problems.

To reduce the risk to themselves, lenders will put a higher interest rate on a used car loan, just in case they do repossess the car and cannot recover the full cost of the loan.

2. What does this mean for you?

The total cost to buy a car that’s 5 years newer using car finance could work out being only a tiny bit more expensive.

Spread out over the loan term, this means only a few dollars more per week. If you get the best car loan you can, then with this small extra cost, you benefit from a newer car with greater reliability and more than likely lower repair costs.

3. Manufacturers Incentivise New Car Purchases

When you’re buying a new car, you can often benefit from the incentives that the car manufacturers use to encourage dealers to sell more of their cars.

If you approach the dealership at the end of the month, you might just score an extra few grand off your new car.

Sure, you’re getting a better deal, but the dealer gives you the discount to push the sale through - chances are they’ll be getting a kickback from the dealer for meeting their monthly quota.

4. What Should You Do?

If you’re buying a new car, wait until the end of the month and then negotiate the price! In fact, if you are buying a used car, it may still pay to push for the lowest price.

In 2013 there were 1.1 million new cars sold, fewer than the 1.8 million used cars sold across Australia.

Car dealers tally up the sales at the end of the month, and the rep you approach might be close to a bonus he’ll make by closing that one last deal, so see how much you can get knocked off.

If you’re not confident about pushing for a lower outright price, get extras the the dealer can easily throw in, like 12 months rego, or the first car service for free. This’ll save you hundreds without costing the dealership much at all.

5. Age Affects Resale Value

There’s more risk with a used car that when you sell the car (or if the lender needs to sell your car if you can’t make your repayments) the amount that you get for the car could be less than is still owing on the car loan.

This means you have an upside down car loan - you owe the lender more than your car is worth. If the lender repossess the car, they might try to recover the difference between the vehicle’s value and the total amount that you borrowed from you.

Car Finance Rates - Should You Buy a New or Used Car?

Usually, you’d think that buying an older car will work out a lot cheaper than if you buy a new or brand new car.

However, it turns out that if you are going to use car finance to buy your next car, buying a newer car could mean that you will get much lower car finance rates. This means that you’ll get a newer car without spending very much more than if you’d decided to buy a car that’s a few years older.

It’s pretty much a win-win situation, because you’ll get a more reliable car that will last you longer, and probably won’t need the big repair jobs done soon. You’ll be saving money in the long run!

Here’s an example of how it works:

Say you want to buy a 2014 Jeep Compass North MK MY 14 - and it’s an automatic. Depending on the mileage, you’ll pay around $31,000 at the dealer.

2 More Things To Know About Used Car Finance Rates

1. Vehicle Age Restrictions

Depending on which lender can give you the best deal in your exact situation, there’s restrictions on how old a used car can be to qualify for car finance.

Here’s a snapshot of the end of term (the age your car will be when the loan is all paid off) vehicle age some of our key lenders will consider:

ANZ 12 years
Macquarie 12 years
St George 15 years
Pepper 15 years
Liberty 20 years
Finance One 25 years


Remember, this means that if you buy a car with a 7 year loan term and your car finance is with ANZ, your new car must be less than 5 years old at loan settlement.

2. Make and Model Valuations Vary

For cars that are really popular in Australia, a lender is more likely to assess the value of the used car at trade value rather than average retail value. In particular, Holdens, Toyotas and Fords tend to lose value fast.

This means that the rates you’ll get on these super-popular cars will be higher than for less ubiquitous models.

Luckily, the number of models, makes and car types available now in Australia is broader than ever before. And if you are considering buying a new car, than buying a new cars is more affordable now in relation to the average salary, than it’s been before, with the right Australian car loan.

Get your best car finance rates

To find out exactly how much more a new car will cost, and whether it'll be better for you to get new car finance rates and spend a little more, talk to our car finance experts about the model you're thinking about, and they'll give you the numbers you need.

If you'd like to do your own research, a car loan interest calculator will help you to determine how much the car loan that you want will cost. Once you have a figure you're happy with, get in touch and we'll quickly match you to the easy car loan you're looking for.

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