New vs Used Car Financing in Australia: What You Need to Know

One of the biggest decisions Australian car buyers face is whether to purchase new or used. While factors like depreciation, warranty coverage, and vehicle features often dominate this discussion, the financing implications are equally important. The way lenders view new versus used vehicles significantly affects the loan options available to you, the interest rates you'll pay, and ultimately, the total cost of your purchase.

Interest Rates: New Cars Have the Advantage

One of the most significant differences between financing new and used cars is the interest rate. Lenders typically offer their lowest rates for new vehicle purchases. This isn't arbitrary—it's based on risk assessment.

New cars are seen as better security for loans because they're more reliable, have predictable maintenance needs, come with manufacturer warranties, and have higher and more stable resale values. If the lender needs to repossess and sell a new car, they're more likely to recover their money.

As of late 2024, new car loan rates in Australia typically start from around 5.5% to 7% for borrowers with good credit. Used car rates are generally 1% to 3% higher, with rates for older vehicles (say, 7+ years old) potentially reaching 10% or more. Use our car loan calculator to see how these rate differences affect your repayments over time.

Loan Terms and Vehicle Age Restrictions

Lenders often impose restrictions on how old a vehicle can be at the end of the loan term. A common rule is that the car cannot be more than 10 to 12 years old when the loan concludes. This affects used car financing in several ways.

For example, if you want to finance a 5-year-old car and the lender requires the vehicle to be no more than 10 years old at loan end, you're limited to a 5-year term maximum. With a new car, you'd have the full range of term options (typically 1 to 7 years) available.

Shorter available terms for used cars mean higher monthly repayments for the same loan amount, which can impact affordability. On the flip side, you'll pay less total interest over a shorter term—though the higher used car rate partially offsets this benefit.

Loan Amount Limitations

Some lenders have minimum and maximum loan amounts that can affect your options. Minimum loan amounts typically range from $5,000 to $10,000. If you're buying an inexpensive used car for $8,000, some lenders won't offer you a loan at all, or you might be limited to fewer competitive options.

Maximum loan amounts vary, but for used vehicles, lenders often limit how much they'll lend relative to the car's value. A lender might finance 100% of a new car's purchase price but only 80% of a used car's value, requiring a larger deposit.

Manufacturer and Dealer Finance Options

New car buyers have access to manufacturer financing deals that simply aren't available for used vehicles. Car manufacturers periodically offer promotional interest rates—sometimes as low as 0% to 2%—to move inventory or promote new models. These deals can make new car financing exceptionally affordable, though they often come with restrictions on models, terms, or customer eligibility.

Dealer finance for used cars is available but typically at less competitive rates than manufacturer-backed new car finance. Dealers still receive commissions for arranging finance, which can be reflected in the rates offered. Always compare dealer finance with direct lending options from banks and credit unions.

Depreciation and Equity Considerations

Depreciation is the elephant in the room when discussing new versus used car financing. New cars lose approximately 15% to 20% of their value in the first year and around 50% over three years. This rapid depreciation can put you in a negative equity position—owing more on the loan than the car is worth—especially if you financed with a small deposit.

Used cars have already experienced the steepest depreciation, so their value tends to be more stable. If you buy a three-year-old car, it will still depreciate, but at a slower rate. This means you're less likely to find yourself owing more than the car's value, providing more flexibility if your circumstances change.

However, the lower interest rates available on new cars can partially offset the depreciation disadvantage. The key is to run the numbers for your specific situation.

Total Cost of Ownership: Running the Numbers

When comparing new versus used car financing, it's essential to look at the total cost of ownership, not just the loan terms. Consider:

Purchase price difference: A new car might cost $45,000 while a three-year-old equivalent is $28,000. That's a $17,000 difference before financing.

Interest rate difference: If the new car rate is 6% and the used car rate is 8%, you'll pay more interest per dollar borrowed on the used car—but you're borrowing far less.

Term differences: Longer terms on new cars mean lower monthly payments but more total interest.

Maintenance and warranty: New cars come with manufacturer warranties and are less likely to need repairs. Used cars may have higher maintenance costs, particularly once they're out of warranty.

Use our car loan repayment calculator to compare monthly payments and total costs for both new and used options with their respective interest rates and terms.

Finding Financing for Older Used Cars

If you're looking to finance an older used vehicle (7+ years old), your options become more limited. Many mainstream lenders won't finance vehicles beyond a certain age. In these cases, consider:

Credit unions: Some credit unions have more flexible policies for older vehicles, especially for members with good credit histories.

Specialist used car lenders: Some lenders specialize in financing older or higher-risk vehicles, though rates will be higher.

Personal loans: An unsecured personal loan has no vehicle age restrictions. While rates may be higher, it's an option if secured car finance isn't available.

Saving and paying cash: For inexpensive older cars, sometimes the best option is to save and pay cash, avoiding financing costs entirely.

Making the Right Choice for You

Neither new nor used car financing is inherently "better"—the right choice depends on your priorities, budget, and circumstances. If the lowest possible interest rate and the newest features matter most, new car financing is attractive. If minimizing total expenditure and avoiding steep depreciation are your priorities, used car financing often makes more sense despite higher rates.

Conclusion

Understanding the financing differences between new and used vehicles is crucial for making an informed purchase decision. New cars offer lower interest rates, more flexible terms, and access to manufacturer deals, but come with higher purchase prices and steeper depreciation. Used cars cost less upfront but typically carry higher interest rates and shorter available terms. By carefully analyzing the total cost of ownership for both options, you can choose the path that best fits your financial situation and goals.