Shopping around for a car loan can be a daunting process. From comparing different lenders, loan terms, and interest rates – determining the right car loan term can be fraught with complications.
In Australia, car loan terms can range from 1 Year to 7-years. But when it comes to finding the best car loan term, it’s about considering your personal finances, how long you intend to keep the car, and how you plan on using the car.
In this article, we’ll run through a ‘typical’ car loan term in Australia, the benefits of a short vs. a long-term loan (and vice versa), and the all-important factors that you need to consider when choosing a lender for your next car loan.
In Australia, car loan terms can range from 1 Year to 7-years. But when it comes to finding the best car loan term, it’s about considering your personal finances, how long you intend to keep the car, and how you plan on using the car.
In this article, we’ll run through a ‘typical’ car loan term in Australia, the benefits of a short vs. a long-term loan (and vice versa), and the all-important factors that you need to consider when choosing a lender for your next car loan.
What is the average length for a car loan in Australia?
The average car loan term in Australia is 5-years or 6-years. A 5-year car loan term is favoured by most car buyers because it strikes a balance between monthly repayments and the average amount of time that consumers hold onto a car.
Most common car loan terms in Australia
The most common car loan terms in Australia are 48-month, 60-month, and 72-month. Four, five, and six year car loans enable consumers to effectively manage their finances and meet monthly repayments over an extended period of time to pay off their vehicle.
48-Month Car Loan
A short car loan period like 48-months makes good financial sense if you can afford it. With a 4-year car loan, you end up paying less in total interest in exchange for a higher monthly repayment – effectively saving you money over the course of the loan period.
60-Month Car Loan
A 60-month car loan or a five-year car loan is a nice middle ground for those looking to balance repayments with interest costs. A 60-month car loan will typically offer a lower interest rate than a 72-month loan because the lender faces lower risk (longer lease terms typically have a higher risk for lenders).
72-Month Car Loan
A 72-month car loan is on the longer side of things when we look at the most common car loan periods in Australia. A 72-month or 6-year car loan allows consumers to buy a nicer car and enjoy lower monthly repayments at the expense of more interest paid out over the term of the loan. For many, a 72-month loan might seem too long, however, when we consider that most Australians will keep their car for anywhere between 6-10 years, a 72-month loan can make a lot of sense.
What is the longest car loan term offered in Australia?
The longest car loan term offered in Australia is typically seven years. 7-year or 84-month car loans are usually deemed high risk by lenders because the extended loan term increases the likelihood of the borrower facing financial hardships or changes in circumstances which may lead to missed payments or default. Vehicle depreciation and a high interest payment at the end of the loan term are also factors that lenders consider when determining whether or not to offer longer loan terms to applicants.
Benefits of a short car loan
The benefits of a short car loan term is quite simple – less interest, shorter repayment schedule (you own the car sooner), and lower overall cost of the loan.
Opting for a shorter car loan term also means that buyers can build equity in their vehicle and potentially lead to more favourable trade-in or resale terms. For lenders, short car loan terms are seen to be less-risky and have a lower risk of missed payments and default.
Benefits of a longer car loan
Longer car loan terms offer buyers lower monthly repayments, increased budget flexibility, and the opportunity to spread out vehicle payments over the life of the vehicle. For lenders, longer car loans may offer a more favourable end result (more interest paid out over the term of the loan), however this is balanced with a higher chance of missed payments and default on the loan.
Finding the right car loan terms
Finding the best car loan comes down to your personal finances, how long you intend to keep the vehicle, and how you plan to use the vehicle. Before taking out a loan, it’s important to understand your financial position and understand how much you can afford with a simple monthly repayment calculator. Based on the vehicle value, interest rate, loan term, and your intended deposit, buyers can quickly calculate estimated monthly car loan repayments and determine the right loan terms for their personal circumstances.
