8 September 2020 ·

How Does Car Finance Work in Australia

How Does Car Finance Work in Australia

A car offers many freedoms – travelling to and from places, at your own schedule and convenience. However, most of us don’t have enough cash saved up to buy a car outright. That’s when car finance enters the picture, but for first-time buyers, it can seem difficult to wrap your head around how to best do it. Which lender to go with? What’s a good interest rate? Read on to find out the essentials of how car finance works in Australia.



Let's talk about how Car Finance works in Australia

If you don’t have enough savings to buy a car outright, you can apply for a loan to cover some or all of the cost. This loan will be paid off in monthly or weekly instalments, over a period agreed with the lender. You’ll pay the lender interest in exchange for the money.

Here’s some key terminology to know when looking for car finance:

Interest rate

The amount of interest you’ll pay to the lender per period, expressed as a percentage of the amount borrowed.

Loan period

The time between the first repayment and the maturity of the loan. For example, if the loan period is 5 years, the full amount of the loan is due 5 years after the first payment.


Repayments are the regular payments you make to pay the loan back to the lender.


A financial institution, individual or organisation that lends funds with the expectation of being repaid.

Guaranteed Future Value

An amount that Toyota finance predict your car to be worth at the end for the finance term as agreed by you based on a few factors, kilometres you travel and wear and tear at the end of your loan term.


A lump sum amount of money that is due as your last payment on a loan to finalise your loan. It allows for reduced monthly repayments, however lenders credit criteria apply.

What Are Your Options for Car Finance?

Dealership Finance

Dealer finance is a car finance option offered through a car dealership, such as Downtown Toyota. Our dealership secures the funds for you through Toyota Financial Services (TFS).

The advantages are:

  • Flexible options not available at the banks (example Guaranteed Future Value, Balloon payment) as well as traditional options 1 – 7 year loans.
  • Convenient. Pick up your car and have your finance done in same time. We work longer hours and are open Saturdays, as well as being local to you.
  • Personalised Repayment Options based on your life and what you want to buy and your credit score.
  • Special Offers on certain cars that a manufacturer is wanting to sell. (e.g. 3.9% Comparison Rate across Corolla range [F1]).
  • Dedicated Vehicle Finance Specialist that can handle business and personal finance applications.

  • Options to complete your application electronically or by paper.

  • Option to have one person handle the entire transaction with specialists dedicated to making the experience a smooth one for you.

  • Secured against your car not your house.

  • Interest Calculated on a Daily Reducing Balance and charged monthly. On both Business and Consumer loans. (Extra payments reduce your interest and balance).

Toyota Finance offer a variety of loan options, so speak to one of our accredited Finance Specialists in the dealership to find out which option best suits you and your circumstances.

Bank Loan

With a bank loan, you receive a lump sum to cover the cost of your vehicle. Different banks will offer different rates, which can be either secured or unsecured, so make sure you do your research and speak to a bank lender. Once you are approved for the loan, you’ll make regular repayments to the bank to pay the loan back. The payment period usually ranges between 1-7 years.

David Koch Financial Expert helps you weigh your options to help you find the right loan.

Watch more of Kochie's videos about Car Finance

What to Look for in Car Finance

A few key tips when looking for car finance are:

  • Compare different lenders carefully
  • Look at the whole life cost of your loan (how much you pay overall)
  • Make sure you are comfortable with the monthly repayments
  • Prepare your household expenses and allow for the new repayment and car expenses (servicing, registration & insurance costs)
  • Check if there are penalties to pay more when you have extra money available.

What to Avoid in Car Finance

The main thing to avoid in car finance is car loan that you can’t afford.

  • Make sure your repayments are feasible for you to pay regularly, so you don’t get hit with late payment fees.
  • Calculate how much you’ll pay for your car altogether, with interest included, before you make your decision.
  • Submitting a lot of finance applications can harm your credit score and this can adversely affect your rates and repayments and furthermore be unfavourable to a lender.

Are you wondering what the repayments might look like for your car finance? Our car finance calculator is a tool you can use to check what monthly repayments would look like in your situation, so you can budget easily.

[F1] 3.9% comparison rate available to approved applicants of Toyota Finance to finance new & demo: (1) Corolla Hatch Petrol & Hybrid models (build dates from May 2018 – September 2020); and (2) Corolla Sedan Petrol & Hybrid models (build dates from September 2019 – September 2020). Offer available for Private, Bronze & Silver customers only. Finance applications must be received by 30/09/2020. Maximum finance term of 48 months applies. Terms, conditions, fees and charges apply. Toyota Finance reserves the right to change, extend or withdraw an offer at any time. Ask your dealer for more information. Comparison rate is based on a 5 year secured consumer fixed rate loan of $30,000. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Toyota Finance, a division of Toyota Finance Australia Limited ABN 48 002 435 181, AFSL and Australian Credit Licence 392536.