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Looking to buy a new car?
If you’re purchasing a new car and would like to understand the different types of car loans and financing options available to you, here’s a great place to start. At IMB Bank, we want our customers to understand the process fully before they take out a loan so that they can borrow with confidence.
With different loan options to suit different budgets, as well as a variety of other information, this blog should help you understand what you need to know before you apply for your first car loan.
How much can I borrow for a car loan?
As with all loans, the amount you can borrow for a car loan really depends on your own financial situation. Lenders like IMB Bank, for example, will assess your finances and work out how much you can comfortably afford to repay. From your income to existing debts, regular expenses, value and age of the car you’d like to buy, and overall repayment capacity, there is a lot to consider when it comes to identifying how much you can borrow and how quickly you can pay it back.
There are also different types of loans available. For example, at IMB Bank, we offer three different types of loans for cars and financing:
- New car loan
- Secured personal loan
- Unsecured personal loan
We’ll go into the details about each loan below. But first, we want to remind you that while it may be tempting to borrow the maximum amount you’re offered, it’s important to think beyond the purchase price. Registration, insurance, servicing and fuel all add to the total cost of owning a car, so it is important to make sure you factor those additional costs in. This gives you breathing room in your budget and can reduce financial stress over the life of the loan.
What’s the difference between a secured and unsecured car loan?
One of the first decisions you’ll need to make is whether to apply for a secured or unsecured car loan.
A secured car loan uses the vehicle as collateral for the loan. The lender has security over the car, so the perceived risk is lower, which often translates into a lower interest rate. IIf you’re unable to make the repayments, the lender has the right to repossess and sell the car to recover the loan. At IMB we offer secured loans for cars up to six years old.
An unsecured car loan does not use the vehicle as security. At IMB, we offer this car loan type for cars over six years old. Because there is more risk to the lender, unsecured loans typically carry higher interest rates and may have stricter approval criteria.
For many first-time buyers, especially those purchasing a newer vehicle, a secured loan could be the more cost-effective option.
How much should I spend on a car?
Setting a realistic budget is one of the most important steps in the car-buying process. It is important to make sure your total vehicle expenses, including loan repayments, are a manageable portion of your take-home income and fit comfortably alongside rent or mortgage payments, utilities and day-to-day living costs.
The decision to purchase either a new or pre-owned vehicle is a common consideration among buyers. Both of these options come with pros and cons, which we will take you through now.
New cars often come with manufacturer warranties, the latest safety features and lower maintenance costs in the early years. However, they can lose value quickly due to depreciation, particularly in the first few years of ownership. This means the car’s value may drop faster than the loan balance decreases.
Used cars are generally cheaper upfront, which can reduce how much you need to borrow and lower your repayments. However, used vehicles may come with higher maintenance costs and limited warranty coverage, if any.
Beyond the loan repayment itself, you also need to factor in insurance, registration, fuel, servicing and potential repairs. If your finances feel stretched on paper, you may need to consider a less expensive vehicle or contribute a larger deposit.
Spending within your means not only protects your credit history but also helps you maintain financial flexibility.
What else should I know before applying for my car loan?
For many lenders, the interest rate offered is influenced by several factors, beginning with your credit score. A strong record of paying bills and loans on time can make you a lower-risk borrower in the eyes of a lender, which may help you secure a more competitive rate. For IMB’s car loans, your credit score does not influence the interest rate offered but may impact the amount we are prepared to lend you.
Car loan terms in Australia commonly range from one to seven years. Choosing the right term is a balance between affordability and total cost.
A shorter loan term typically means higher monthly repayments, but less interest paid overall. A longer term lowers your monthly repayments, which can make the loan feel more manageable, but may increase the total interest you pay across the life of the loan.
At IMB, we want to support you on your car buying journey; it’s a really exciting milestone and one of the biggest purchases you may make. If you’d like more information on our different types of car loans, please visit our car loans page. We regularly update this with our latest interest rates, so this may be subject to change.
