How Does Financing A Car Work

Looking to buy a new or used car but don’t have the funds to pay upfront? You’re not alone. Car finance is a common option that helps many Australians get on the road sooner. But how does financing a car work, exactly? Whether it’s your first car or your fifth, understanding the ins and outs of car finance can help you make informed decisions and avoid costly mistakes. We’ll break down what car finance is, how it works through dealerships and lenders, what you need to qualify, and the pros and cons of taking out a car loan in Australia.

Overview:

• What is car finance?
• How does financing a car work through a dealership?
• Can you pay off a car loan early?
• What do you need to finance a car in Australia?
• What credit score do I need for a car loan in Australia?
• How long does it take for car finance approval​?
• Is finance on a car a good idea?

Each option has its own benefits and drawbacks, so it’s worth comparing offers and choosing the one that suits your financial circumstances.

How does financing a car work through a dealership?

Some buyers choose to arrange car finance through the dealership where they purchase the vehicle. In these cases, the dealership typically works with a partnered lender to provide the loan, and may include extras such as insurance, extended warranties, or servicing in the finance package.

While dealer finance can be convenient, promotional offers—such as low or zero interest rates—may have strict eligibility requirements or be limited to certain models. In some cases, the car’s price may also be adjusted to account for the offer.

It’s worth comparing dealer finance with other options, such as those available through banks, credit unions, or finance brokers like Oceania Finance. As a finance broker, we can compare a range of lenders and products to help you find a solution that suits your needs, making the process simpler and potentially saving you time and money. Talk to our experts today!

Learn more: How to Finance a Car.

Can you pay off a car loan early?

Most lenders in Australia allow you to repay your car loan early, either by making extra repayments or paying off the full balance before the loan term ends. However, it’s important to check whether any fees or penalties apply.

Some fixed-rate loans come with early repayment fees, especially if you pay off the entire loan well ahead of schedule. Variable-rate loans tend to be more flexible with extra repayments.

If you’re considering early repayment, ask your lender to outline any costs involved and calculate whether it’s worth it in the long run.

What do you need to finance a car in Australia?

To apply for car finance in Australia, you’ll need to meet some basic eligibility requirements and provide documentation to support your application. While exact criteria vary between lenders, here’s what you generally need:

1. Proof of identity
This usually includes a driver’s licence, passport, or Medicare card.

2. Proof of income
Lenders want to ensure you can afford the loan. Be prepared to provide recent payslips, bank statements, or tax returns if you’re self-employed.

3. Employment details
Stable employment can improve your chances of approval. Depending on the lender, you may need to provide your employer’s contact details and confirm how long you’ve been in your role.

4. Credit history
Lenders will check your credit report to assess how reliably you’ve managed debt in the past.

5. Personal information
This includes your residential address, rental or mortgage commitments, and any other ongoing financial obligations.

Some lenders offer pre-approval, which allows you to shop for a car with confidence knowing your budget is already set.

What credit score do I need for a car loan in Australia?

There’s no single minimum credit score required for car finance, as criteria vary between lenders. In Australia, credit scores generally range from 0 to 1,200, depending on the credit reporting agency:

Borrowers with higher scores may have access to a wider range of loan options, while those with lower scores may have fewer options or different loan conditions. If you’re concerned about your credit score or unsure where you stand, a loan broker, like our team at Oceania Finance, can help compare lenders and loan products to find a solution that suits your needs.

How long does it take for car finance approval​?

Approval times can vary depending on the lender and how quickly you submit the required documents. Generally, here’s what you can expect:

• Online lenders: some can approve applications within a few hours to one business day.
• Banks and credit unions: may take a couple of days or more, especially if more documentation is needed.
• Dealer finance: can sometimes be arranged on the spot, though final approval may still take a day or two.

Pre-approval can help speed things up and give you more confidence when negotiating with sellers.

Whether car finance is suitable will depend on your financial circumstances, goals, and ability to meet all associated costs, including insurance, registration, and maintenance.

Thinking of car finance? Let our broker team do the hard work.

At Oceania Finance, our expert brokers partner with a wide network of lenders to secure competitive terms and personalised solutions tailored to your situation. Whether your credit score is great, average, or not so strong, we’re here to help simplify the process and get you into a car you can afford. Reach out today and let’s get started.
 

FAQs

Can you sell a car under finance​?

Yes, it is possible to sell a car that is still under finance. Typically, you’ll need to check how much is owing, inform the buyer, and use the sale proceeds to pay off the lender. Once the loan is cleared, the lender will release their interest in the vehicle, allowing the transfer of ownership to proceed. It’s a good idea to contact your finance provider early to get the payoff amount and understand any fees that may apply.

What is the average car finance interest rate​?

Interest rates can vary depending on factors like your credit score, loan amount, loan term, and whether the loan is secured or unsecured. When comparing car finance options, it’s important to look at both the interest rate and the comparison rate to get a clearer picture of the total cost.

Do you need a good credit score for car finance​?

While a good credit score can give you access to better rates and more lender options, there are specialist lenders in Australia who work with borrowers with fair or poor credit histories. Just keep in mind the trade-off is often a higher interest rate and stricter loan conditions.