A Beginner’s Guide to Car Loans

A Beginner's Guide To Car Loans

If you’re buying a new or used car on Gumtree, a car loan can get you into your ideal ride now without paying the full purchase price upfront. We’re here to help you understand the lending jargon, so you can find the best car loan rates for you.

Car loan basics: common terms you need to know

Here are some common terms you need to understand before you start looking for the right car loan.


Car loans (and other loans) are subject to interest. When you are repaying a loan, you pay back what you borrowed (called the ‘principal’) and an extra ‘interest’ amount. The total cost is determined by the car loan interest rate and how quickly you repay the money.


Security (or collateral) is property used to offset the lender’s risk. When there is security against a loan, the lender can lawfully take this property as collateral if you don’t repay them. This is called a secured car loan and the security will usually be the car itself. You can get an unsecured car loan—which means your car is safe from being repossessed—but the interest rate will be higher.

Credit history

Your credit history records money you’ve borrowed in the past and whether or not you repaid those loans punctually and completely. In Australia we have a system called comprehensive credit reporting, meaning financial institutions must report all activities to a credit reporting agency so that other finance providers can check them. You can check your credit history (also called a ‘credit report’ or ‘credit score’), and with your permission, a financial provider can also do so. A good credit history demonstrating timely repayments will ensure that you’re eligible for low-interest loans.

What do I need to prepare before applying for a car loan?

The size of the loan you’re able to take out usually depends on your income and the amount you can comfortably repay weekly on top of your regular living expenses. When you make an agreement with a finance provider, they’ll ask for evidence of both your income (from a payslip or your employer) and your expenses (the lender will typically provide a form for you to complete).

You can check your credit history online for free. There are also bad credit car loans available—a finance broker (an advisor who finds loans for borrowers with specific needs) can help to find one. If you end up getting a high-interest car loan because of bad credit, you can work on improving your credit score and get a cheap refinance car loan at a lower interest rate once your credit history improves.

Where can I get a car loan?

You can get a car loan directly from the dealer you buy from, from a bank or credit union, or from a specialist car finance company. Finding the right loan will depend on the car that you’re buying, your credit history, and your preferred repayment amount, all of which will be assessed by potential finance providers. Check out our complete guide to car loans for help understanding which one is right for you before you sign up.

Your dream car could be closer than you think! If you’re looking for your first car, Gumtree has lots of great options for less than $5,000.

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