How you pay for a car can cost or save you thousands. Here is what the main options actually mean, in plain English.
Secured car loan
The most common choice. The car itself is security for the loan, which usually means a lower interest rate. The trade-off is that the lender can repossess the car if you stop paying. Terms are typically three to seven years.
Unsecured personal loan
No security against the car, so the rate is usually higher. It can suit older or cheaper vehicles that lenders will not secure against, and it leaves you free to sell the car whenever you like.
Dealer finance
Convenient, and sometimes genuinely competitive when a manufacturer is running a low-rate campaign. The risk is convenience pricing. Always compare the dealer offer against at least one bank or credit union quote before signing.
Novated lease
An arrangement between you, your employer and a leasing company, where payments come out of your pay. It can be tax-effective for some employees, and running costs like fuel, insurance and servicing are often bundled in. It also ties your car to your job, involves fringe benefits tax rules, and usually ends with a residual payment. It suits some people very well and others not at all — worth speaking to an accountant rather than only the leasing company.
Watch the balloon payment
A balloon or residual is a large lump sum owed at the end of the term. It makes monthly repayments look small, but you still owe that money, and you may owe more than the car is then worth. Only take one on if you have a clear plan for paying it.
Compare the right number
Look at the comparison rate, not just the advertised interest rate — it folds in most fees and gives a fairer picture. Also check establishment fees, monthly account fees, and whether there is a penalty for paying the loan out early.
Get pre-approved
Arranging finance before you shop turns you into a cash buyer. You know exactly what you can spend, and you can negotiate the car price and the finance separately instead of letting them be blended together.