Car Loan Facts in Australia

Car Loan Facts in Australia

Filed under Information Centre

Car loans, personal loans and credit cards are often viewed as bad debt. This is because these types of consumer debt won't increase your future wealth in the long run, like mortgage or investment debt attached to an asset should.

However, unlike a credit card, a car loan can be the link that connects you to practical, safe transportation and can hugely impact your earning capacity too.

Personal and car loans make up about 3.1 per cent of Australian household debt.

Putting this into context, if every Australian was allocated a portion of the total car loan debt and a portion of the total property debt, then each person would have $670 car loan debt and $10,320 property debt in the twelve months up to November 2017. So Australians borrow 15 times the amount borrowed for cars towards buying housing.

How many people use car loans?

In 2017, 1 in 5 new cars was purchased using a car loan. That's 236,451 car loans with a total of $8.5 billion borrowed to purchase a new car. That's one per cent of the Australian population buying a brand new car in 2017.

The total amount of car loans in 2017 was $16 billion, $6 billion of this lending was to buy used cars and $1.5 billion for other types of vehicles.

Why do Australians use car loans?

Cars are expensive, and as secured car loans currently come with low-interest rates, it often makes sense to borrow funds for a new car rather than buying the vehicle outright.

How has the loan market changed?

In the last two decades, the proportion of personal loan debt to mortgage debt has shrunk. Back in 1977, many people had equal personal loan and mortgage debt. Now personal debt makes up a much smaller percentage of the total household debt.

This is due to a huge increase in mortgages, though that total car loan value has doubled since 1977. in 2017, 7.3 per cent of Australians were paying a car loan, while 31 per cent had a mortgage.

Since the introduction of federal regulation of consumer car finance in 2010, ASIC has also cracked down on irresponsible lending practices, making it easier for people to access fair car loans.

Are Australians buying more cars?

Research by Roy Morgan of 50,000 consumers annually shows that 2.26 million Australians plan to replace their current vehicle with a new car within the next four years.

This is likely in response to the highly competitive new car market in Australia, with over 350 models available from 67 brands and more arriving in 2018. This competition means that prices are cheaper in Australia than other right-hand drive markets.

In 2017 there were 1,189,116 new cars registered by car dealerships, with the best overall seller in Australia still the popular, reliable Toyota Hilux Ute.

Read more about which cars Australia bought in 2017 here.

Fuel choices

75.3 per cent of these cars were petrol-powered cars, but over the next four years, it's predicted that 61.9 per cent of buyers will purchase a petrol car. Drivers are shifting to diesel, an increase of 5.3 per cent to 29.2 per cent of the market, and drivers are also considering hybrid-electric vehicles which will move from 4.7 per cent of the market to 5.2 per cent in the next four years.

You can finance new hybrid and electric technologies, as these fuel sources become more affordable, the market share for fully electric cars should increase to 3.1 per cent, from just 0.1 per cent in 2017.

New cars are safer and cheaper

A car that valued at $20,000 in 2000 is now available for purchase for 16 per cent less at $16,753 (based on ABS inflation data).

Are you planning to buy a new vehicle?

Getting the right finance when you buy a new car can make a huge difference to the total cost of the vehicle. Yet in 2016 a report by the Australian Automotive Research Group ACA Research showed that more than 33 per cent of new car buyers didn't consider how they would fund the purchase until the last week.

Before you begin choosing the car you'll buy, get a car loan pre-approval in place so that you can be confident that you have a fair car finance deal.

*Data sourced from ABS and the Federal Chamber of Automotive Industries.

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