Best Way to Finance a Car in Australia

Buying a car is one cost most Aussies can’t live without. As of January 2025, there were over 22.3 million registered vehicles across the country, according to the Bureau of Infrastructure and Transport Research Economics (BITRE). VFACTS data shows that 1,241,037 new cars were registered as sold in 2025, breaking the annual record for the third consecutive year, while the Australian Automotive Dealer Association (AADA) revealed that used car sales reached 2,316,208 in its annual Automotive Insights Report (AIR).

Behind those numbers, though, you can see just how many people seek out finance in one way, shape or form. Just one of those sources, new fixed term car loan commitments, totalled $4.919 billion in the third quarter of 2025 alone. So, how else are Australians financing their car purchases and which one is the best way to do it?

What is the best way to finance a car in Australia?

The main ways to finance your car purchase in Australia are:

• Secured car loans
• Dealer finance
• Unsecured car loans
• Novated leasing
• Paying for your car with savings
• Using your home loan redraw facility or refinancing
• Putting your car on your credit card

Let’s take a look at each option to see how it works and why it might (or might not) be suitable for you.

Secured car loans

As mentioned, car loans are among the most popular ways to finance new and used cars around the country. Under this agreement, the vehicle acts as security for the loan, giving you access to lower interest rates and fees compared to other unsecured finance types.

You can take between one and seven years to pay off your loan, giving you flexibility in the size of your repayments and allowing you to ensure it’ll be completed within a comfortable timeframe for your financial situation.

If you have a good credit score, you could secure a car loan with a rate as low as 5.85% p.a. through Savvy (as of January 2026). The average car loan taken out by customers with good credit through Savvy in 2025 was $38,527, so, over five years and with the lowest rate of 5.85% p.a. (as of January 2025), you’d pay $742 per month and $6,002 in overall interest.

Pros and cons of secured car loans

Dealer finance

As the name suggests, dealer finance involves taking out a car loan through the dealership you’re purchasing the vehicle from. It’s important to consider dealer finance compared to standard car loans in terms of pricing and overall suitability before diving into the application process.

The biggest benefits of applying through your dealership are its convenience, meaning you can have everything sorted out in one place by the same person, and interest rates that can start from as little as 1.99% p.a. or even 0% p.a.

Against these benefits, however, are common tactics that could end up costing you considerably more for your car. The low starting rates may only be applicable for the first six to 12 months of your loan, for one. Inflated car purchase prices, mandatory deposits, three to five-year terms, steep balloon payments and more can set you back further. Low-rate deals are usually only offered for certain models, too.

For example, even if you got a 1.99% p.a. rate on a $75,000 car loan, you’d have to pay $2,148 each month to keep your head above water on your three-year term.

Pros and cons of dealer finance

Unsecured car loans

An unsecured car loan is essentially an unsecured personal loan. The key difference between it and a standard car loan is that the vehicle itself isn’t connected to the loan as collateral. Because of this, you can use the funds however you like and borrow money to put towards other expenses, rather than your car alone. Additionally, without the need to assess loan security, this finance option is often quicker to process.

However, the flip side of this is that you’re likely to be subject to notably higher interest rates and fees. In most cases, unsecured car loans are only advised for vehicle purchases if the model you’re after doesn’t qualify for secured finance through your lender (such as a 25-year-old car with a lender who only finances vehicles up to 15 years old).

Among customers with good credit, the average personal loan taken out for car expenses through Savvy in 2025 was $25,541. At an interest rate of 12.00% p.a., this adds up to $568 per month and $8,548 in interest across a five-year loan.

Pros and cons of unsecured car loans

Novated leasing

A novated lease is a three-way arrangement involving you, your novated lease company and your employer. Your employer makes payments to the company on your behalf, deducting the amount from your pre-tax salary to cover the cost.

Because these payments are made from your pre-tax income, you’ll pay less income tax overall. You can also receive fleet discounts on the purchase of the vehicle and have GST credits claimed by your provider. The main obstacle is their availability: not all employers offer them, and they aren’t available to all employment types (especially non-salaried employees).

As it pertains to your taxable income and other related benefits, calculating the total savings is a bit more complex, as there’s a wide range of variables that can impact how much it may cost or save you. You can get a free, no-obligation novated lease quote through us today if you want to speak to a professional and find out more about it.

Pros and cons of novated leasing

Paying for your car with savings

If you have enough in the bank to purchase a car without a loan, you could save thousands of dollars in interest and fees. You also won’t have to worry about any ongoing, long-term commitments to paying your lender.

However, the reality is that many Australians aren’t in a position to buy their next car with savings alone. According to an October 2025 report from the Australian Institute of Health and Welfare (AIHW), around one in five people aged 15 or older are experiencing financial stress. That’s the highest mark it has reached in over a decade.

Although an ideal situation for many would be to simply withdraw the funds for their next car from their account, buying your vehicle shouldn’t wipe out your savings at the expense of household essentials.

Pros and cons of buying your car out of pocket

Using your home loan redraw facility or refinancing

If you’re currently paying off your mortgage, you also have the option to withdraw any additional funds paid into your redraw facility or to refinance your loan to purchase your vehicle. In effect, this means you’ll be adding your car to your home loan.

Redrawing on or refinancing your home loan means the impact on your monthly budget will be minimal and you won’t have to juggle an extra payment each week, fortnight or month. Because of the long-term nature of mortgages, though, you’ll likely end up paying much more for your car in interest than you would’ve otherwise.

For example, opting to refinance your $600,000, 25-year home loan at 5.34% p.a. to pay for a $50,000 car loan at a new rate of 5.24% p.a. would cost you over $21,000 more than staying on the same loan and taking out a $50,000, five-year car loan at 5.85% p.a. instead.

Pros and cons of buying a car with a home loan redraw facility

Putting your car on your credit card

Lastly, you might think that simply putting your car on your credit card is a good idea. This is only the case if you have the funds available to pay off the debt in full within a very brief window, as exorbitant rates can apply to credit cards (easily sitting in the 15.00% p.a. to 20.00% p.a. range) if your outstanding balance exceeds the interest-free period.

Credit cards typically come with only a 30-day interest-free period, with most cards capping out around the 60-day mark. If you aren’t paying it off within a few months, you could see your debts mount very quickly and put you at greater risk of financial stress.

If you were to take out the average-sized car loan of $37,049 and were paying $1,200 a month off a credit card with an 18.00% p.a. interest rate, you’d repay $49,109 to pay the car off in three years and five months. On the other hand, if you had the same size car loan at a rate of even 9.00% p.a. on a five-year loan, your monthly repayments would only be $769 and you’d repay $46,145 in total. As a result, using your credit card to buy your next car is rarely the best option.

Pros and cons of buying a car with a credit card

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Car finance option cost comparison

The following table shows how much you might pay for a $30,000 car across different finance types:

What is the best way to finance an electric or hybrid car?

If you’re in the market for an environmentally friendly vehicle, one other option you’re likely to have open to you is a green car loan. These are the same as a standard secured car loan but come with a small (but meaningful) rate discount, up to as much as 0.50% p.a.

However, it’s important to be aware of what constitutes a green vehicle with your lender, as some cars may qualify for reduced rates with certain lenders but not others.

It’s also worth noting that, due to their exemption from fringe benefits tax (FBT), novated leasing can be a highly cost-effective way to finance your electric vehicle. However, this exemption will be reviewed by the Australian Government in the coming months, potentially removing it as a lucrative novated leasing option for drivers.

What’s the best way to buy a used car?

Pretty much all of the above options apply to used cars as well as new ones. The clear benefit of opting for a used vehicle instead of a brand-new one is that a fair chunk of its depreciation is in the rear-view mirror, meaning its value will drop by a smaller percentage while you own it. Since they’re cheaper, paying for a used car with cash is a more achievable goal for many Aussies.

Interest rates for used vehicles are slightly higher than for brand-new models in general, so you can expect to pay slightly more if you’re opting for a secured car loan. Novated leases are also often for new cars only, but Savvy is among the only options on the market that allows you to take out a novated lease for a pre-owned vehicle.

What is the best way to finance a car for my business?

There are a few other finance options available when it comes to commercial-use vehicles. These are:

Chattel mortgage

Chattel mortgages are essentially the same as car loans, with a few extra features and conditions. Most notably, you can claim the GST on the purchase, as well as interest and depreciation, as tax deductions (up to the percentage of the car’s business usage).

You also own the vehicle from the outset, while many come with the option of customisable balloon payments, which reduce your monthly payments but increase your overall interest outlay.

For businesses that prefer a swifter, more seamless turnover of vehicles, chattel mortgages may not be the most suitable.

Finance lease

The main alternative to buying your business car is leasing it. A finance lease allows you to essentially rent the car for your business over a period of up to five years, with up to 100% of your lease payment being tax-deductible. At the end of the term, you’ll need to cover the cost of the residual either by paying it in cash, refinancing it to extend the lease or selling the car.

Operating lease

Unlike finance leases, operating leases come without a residual. This means you’ll have to hand it back at the end of your term. Another area of difference is that on-road costs like insurance, servicing and registration are typically bundled into the lease payments, which isn’t usually the case for finance leases. This results in operating lease payments being higher in most cases.

So, what’s the best way to finance my car?

Ultimately, the best way to finance a car depends on you and your individual circumstances. Here are a few situations where one option may be better than the others:

• If you’re in a comfortable financial position with no major debts and have enough in savings to continue to manage your money without issue, paying cash is likely the cheapest and most sensible option available.
• If you aren’t in a position to pay the full price out of pocket, a car loan is probably the next best option.
• If your work offers novated leasing and you’re earning enough for the tax savings to be worthwhile, that could be worth exploring (especially if you’re in the market for an EV).
• If the car you’re looking to buy is especially old or not in great condition, an unsecured loan might be the only option available.
• You should only ever put your car on your credit card if you have the means to pay it off quickly, due to their very high interest rates.

If you’re still unsure about where to start, we suggest using a car loan repayment calculator so you can get an idea of how much you can afford.