Car finance has its own language, and lenders don't always slow down to explain it. Get a few key terms straight and you'll spot a genuinely good deal, and dodge one that only looks cheap. Here are the three that matter most.
A secured car loan uses the car itself as security. Because the lender can repossess and sell the car if you don't pay, secured loans usually come with lower interest rates. An unsecured loan isn't tied to the car, so the lender takes on more risk, and as Moneysmart notes, the interest rate is often higher to match.
Which one suits you depends on the car, the loan size and your situation. Newer cars are more often financed with secured loans. Older cars sometimes don't qualify, which can push you toward an unsecured option.
A balloon payment (also called a residual payment) lets you push part of the loan into one big lump sum at the end of the term. Your monthly repayments are smaller, which looks great. But Moneysmart is clear about the catch: you still have to repay that lump sum with interest, so the total cost of the loan is usually higher.
The risk is the bill waiting at the end. Before you agree to a balloon, be sure you'll have the money to pay it, or a plan to refinance it, when it falls due. Moneysmart's advice is simple: only choose a balloon payment if you're confident you can cover it.
Advertised interest rates can be misleading, because they leave out fees. That's what the comparison rate is for. It rolls the interest rate together with most fees and charges into a single percentage, so you get a more honest picture of what the loan costs each year. When you're weighing up offers, compare the comparison rates, not just the headline rates.
One thing to keep in mind: a comparison rate is worked out on a standard example loan, so your actual cost can differ. Use it to rank loans fairly, then check the real numbers for your situation.
The best car finance deals go to people who present well: a clean credit file, manageable commitments, steady income. That's exactly what the Perfect Score program helps you build. And because we're partnered with Ausloans Finance Group and Drive Approved, there's a clear path from finance-ready to behind the wheel.
Want to be in the strongest position before you apply? Book a free, no-obligation assessment.
General advice warning: This article is general information only. It doesn't take your personal circumstances, objectives or needs into account, so consider your own situation and seek professional advice before making financial decisions. Perfect Score Pty Ltd | Australian Credit Licence 562270 | AFCA member.