The short answer: there is no single best car finance option in Australia. The main ways to finance a car are a secured car loan, an unsecured personal loan, dealer finance, a novated lease, and a chattel mortgage for business use. For most people buying a car for personal use, a secured car loan usually comes with the lowest interest rates, because the car backs the loan. But the option that genuinely fits you depends on a few things: whether the car is for personal or business use, whether your employer offers salary packaging, and how your own situation stacks up. And the single biggest money decision most buyers get wrong has nothing to do with the lender. It is comparing the weekly repayment instead of the total cost. More on that below.
I worked at a car dealership before I became a broker, so I have sat on the other side of the finance desk. This is the explanation I wish every buyer walked in with.
There are five common ways to finance a car in Australia. Each one suits a different kind of buyer, so it helps to know what you are choosing between before you start.
A secured car loan and an unsecured personal loan are the two most common options for personal buyers. Dealer finance is the loan arranged for you at the dealership. A novated lease is a salary packaging arrangement set up through your employer. A chattel mortgage is a business finance product for people buying a vehicle mainly for work. Here is how each one actually works, and where it tends to fall down.
A secured car loan is usually the lower-cost option for someone buying a car for personal use. The car you are buying is used as security for the loan, which lowers the lender's risk. According to ASIC's Moneysmart, a secured loan usually carries a lower interest rate than an unsecured one for this reason, and it can mean a longer term and a higher borrowing limit. You own the car from day one, and the lender records their interest on the Personal Property Securities Register, the national government register of security interests, until the loan is paid off.
The trade-off is that the car is security. Moneysmart notes that if you fall seriously behind on repayments, the credit provider has the right to sell the car to recover what they are owed. Lenders also tend to have rules about the age of the car, so a very old or high-kilometre vehicle may not qualify. It tends to suit buyers with a reasonable credit history who are buying a newer or near-new car.
An unsecured personal loan is worth considering when a secured loan does not fit, for example if you are buying privately or buying an older car. You are not putting the car up as security, so there is no asset for the lender to repossess if things go wrong, and the loan is often quicker to arrange with less paperwork.
The downside is usually the rate. Because the lender has no security, Moneysmart notes that unsecured loans usually have higher interest rates than secured ones. Over a five-year term that gap can add up, so it is worth weighing the convenience against the cost. Moneysmart also points out that if you do not repay an unsecured loan, the lender can take legal action to recover the money.
Dealer finance is the loan offered to you at the dealership, arranged on the spot when you buy the car. Its appeal is convenience. You can sort the car and the finance in one visit, which is why a lot of people sign up for it.
There are two things worth understanding before you do. First, it is usually a single finance offer, not a comparison across lenders, so you are not seeing what else is available. Second, NAB's own car buying guidance notes that dealerships generally earn a commission on the finance they arrange, a higher commission when their own finance company is used, and commission on add-ons like extended warranties. None of that makes dealer finance a bad choice on its own, but it is a reason to compare. ASIC's Moneysmart suggests comparing loans before you visit a car dealer, so you know what a fair deal looks like before you are in the room. Getting finance pre-approved before you walk in also lets you treat the car price and the finance as two separate conversations.
A novated lease can be tax-effective if you are employed and your employer offers salary packaging. It is a three-way arrangement between you, your employer, and a finance provider. Your employer makes the lease payments from your pre-tax salary, which can reduce your taxable income, and a fully maintained lease can bundle running costs like fuel, servicing, registration and insurance into one payment. Eligible battery electric vehicles can be especially worth pricing up here. The ATO currently provides a fringe benefits tax exemption for eligible zero or low emissions electric cars that meet its conditions, which include the car being first held and used on or after 1 July 2022 and being under the luxury car tax threshold, and benefits provided under a salary packaging arrangement can be included. Two important points the ATO sets out: plug-in hybrid vehicles are no longer eligible for this exemption from 1 April 2025, and the government will review the exemption by mid-2027, so the rules can change. The exemption can lower the cost of an eligible EV, but because eligibility and any saving depend on your circumstances and the current rules, check the ATO's guidance and speak with a licensed tax adviser before relying on it.
The trade-offs matter. You do not own the car during the lease, and there is usually a residual value to pay at the end if you want to keep it. The arrangement is tied to your job, so if you change employers the lease may come back to you. There can also be limits on kilometres and wear and tear. Because the tax treatment depends on your personal circumstances, talk to a licensed tax adviser before deciding whether a novated lease stacks up for you.
A chattel mortgage is a business finance product, designed for sole traders and companies buying a vehicle that is mainly used for work. You own the vehicle from day one and the lender holds a mortgage over it until the loan is repaid. For eligible businesses there can be tax advantages, which may include claiming GST and deductions for interest and depreciation, and many buyers add a balloon payment to lower their regular repayments. The exact treatment depends on your business, how the vehicle is used, and current ATO rules.
Two things to keep in mind. Because a chattel mortgage is business lending, it is generally treated differently from a personal car loan and may sit outside some of the consumer credit protections that apply to personal loans. And the tax outcomes are not automatic. This is squarely an area to confirm with your accountant or tax adviser and to check against the ATO's guidance, rather than assume from a general article.
The best car finance option is the one that matches three things: what the car is for, how you are employed, and what you want at the end. Work through those and the field narrows quickly.
If the car is for personal use, you are usually choosing between a secured car loan and an unsecured personal loan, and a secured loan tends to win on rate if the car qualifies. If your employer offers salary packaging and you want a newer car or an EV, a novated lease is worth pricing up alongside a loan. If the car is mainly for business, a chattel mortgage and the tax questions that come with it move to the front. The point is not to find the option with the lowest weekly repayment. It is to find the structure that fits your life and costs you the least overall.
The weekly repayment tells you what fits your budget. It does not tell you what the loan actually costs. Two loans with the same weekly repayment can cost very different amounts once you add up the full term, the interest, and the fees. That is where the comparison rate comes in. ASIC's Moneysmart defines a comparison rate as a single figure that helps you work out the true cost of a loan, including the interest rate and most fees and charges. For car loans, Moneysmart notes the lender must give you the comparison rate, which makes it the cleanest way to compare one loan against another. Just compare the same loan amount and term when you do.
Here is an illustrative example, using round numbers to show the idea rather than any real offer. Say you borrow $35,000 over five years. A loan advertised at a lower weekly repayment but stretched over a longer term, or carrying higher fees, can quietly cost you more in total than one with a slightly higher repayment over a shorter term. Always check the total amount repayable and the comparison rate, not just the number per week. (Illustrative figures only. A comparison rate is true only for the example given, and different amounts or terms produce different comparison rates.)
A balloon payment is a lump sum left owing at the end of the loan, after all your regular repayments are done. Setting one means your weekly or monthly repayments are lower, which can help cash flow. The catch, as Moneysmart explains, is that you still repay that lump sum with interest, so the total cost of the loan is generally higher. A balloon can make sense, particularly for some business buyers managing cash flow, and it can hurt if you have not planned for the final payment. Moneysmart's advice is to be confident you will have the money to pay it when it falls due. Like the rest of this, it comes down to your situation.
Both can work. Going direct to a bank or lender is straightforward if you already know what you want. A broker compares options across a panel of lenders rather than a single bank's products, handles the application and paperwork, and is generally paid by the lender rather than by you. Where a broker earns their keep is when your situation is not cookie-cutter, or when you simply do not have time to compare the market yourself.
That is the part of the job I love, working out which lender actually fits someone, then explaining the options so they can make the call themselves. No pressure, no jargon, no judgment.
What is the best type of car loan for a first car? For a first car bought for personal use, a secured car loan is usually the most cost-effective option if the car qualifies, because it tends to carry a lower interest rate than an unsecured loan. The right answer still depends on the car, your income, and your credit history.
Does applying for a car loan hurt my credit score? A formal credit application is recorded on your credit file, and Moneysmart notes that several applications in a short space of time can affect how lenders see you. Many brokers and lenders can give you an indication of your options using a soft check before you formally apply, which does not affect your score.
Can I get finance for a used car or a private sale? Yes. Secured car loans are available for many used cars, though lenders often have limits on the age of the vehicle at the end of the loan term. For older cars or private sales, an unsecured personal loan is sometimes the more practical route.
What is a comparison rate? A comparison rate combines the interest rate with most fees and charges into a single percentage, so you can compare the true cost of different loans rather than just the advertised interest rate.
Should I get pre-approval before going to the dealership? It helps. Walking in with finance pre-approved means you know your budget and your rate, and you can treat the car price and the finance as two separate negotiations rather than one bundled deal.
Written by Ashley, founder of Noma Finance. Before becoming a finance and asset broker, Ashley worked at car dealerships, and has personally held every loan type Noma helps with. Noma compares options across a panel of lenders to help people find finance that fits their situation, explained in plain English.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial, credit or tax advice. Consider whether it is appropriate for you and seek advice from a licensed professional before making a decision. Tax outcomes for novated leases and chattel mortgages depend on your circumstances and current ATO rules, so speak with a licensed tax adviser or accountant. The information is current as at the date below and rules, rates and thresholds can change, so check the linked sources for the latest. Any figures used are illustrative only.
Last updated: June 2026.
Sources last checked June 2026.
Written by Ashley, founder of Noma Finance. Before becoming a finance and asset broker, Ashley worked at car dealerships, and has personally held every loan type Noma helps with. Noma compares options across a panel of lenders to help people find finance that fits their situation, explained in plain English.
This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial, credit or tax advice. Consider whether it is appropriate for you and seek advice from a licensed professional before making a decision. Tax outcomes for novated leases and chattel mortgages depend on your circumstances, so speak with a licensed tax adviser or accountant. Any figures used are illustrative only.
