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Car loan fees and features


A car loan could be your saviour when it comes to turning your auto dreams into reality. Whether you choose to take out a car loan from a bank, credit union, peer to peer or online lender there are many terms and phrases or fees and features you may not be aware of.

So to help make things a little easier, here's a rundown of what you might expect from your car loan. 

Types of car loans

Like regular personal loans, there are two main types of car loans you can take out: secured and unsecured. Neither is better than the other, it’s totally up to you and your financial situation as to which one you choose.

Secured loan:

A secured car loan requires the borrower to put up an asset as security against the loan. You can offer the lender your car, house or even jewellery as collateral. While you’ll receive lower interest rates and fees with a secured loan, the lender has the right to take possession of your asset if you fail to make the required repayments. If you’re looking at borrowing a substantial amount of money for a luxury vehicle and paying it back over a long period of time, then a secured loan may be your best option. Check out some hot deals on secured loans right here!

Unsecured loan:

A lender does not require security against an unsecured loan, so the borrower doesn’t need to worry about losing their wheels or home. If you’re applying for an unsecured loan, you do need to have secure employment, a good credit rating and perceive as no potential financial risk to the lender. An unsecured loan usually ranges from 1 to 7 years and usually offers smaller borrowing amounts from around $5000 up to $50,000. Click here to find some great unsecured loans.

Car loan features explained

If you're after the nitty gritty of car loans, you've come to the right place. Let’s break it down and explain some of the features of a car loan.

  • Variable interest rate: This means the interest rate on your loan will change throughout the loan term. The repayments on the loan will coincide with the fluctuating market interest rates.
  • Fixed interest rate: The interest rate is locked in and will not change for the duration of the loan. Budgeting is made easy as repayments stay the same for the term of the loan.
  • Comparison rate: This rate is as transparent as you can get! A comparison rate is inclusive of fees and charges as well as the interest rate.
  • Extra repayments: This feature allows you to make advanced and additional repayments on your loan, so you can be debt free quicker than you planned. Shop around and find a loan that won’t charge you for making extra repayments.
  • Redraw facility: Once you've paid off a portion of your loan, you can draw that money back out again. This feature may be handy to have for when an unexpected bill or health issue pops up.
  • Payment frequency: This is how often and when you make repayments. The payment frequency is determined when you set up the loan and can be weekly, fortnightly, monthly or an agreed date.
  • Loan term: This is the duration you have to repay the lender the money you have borrowed. With a secured loan the term can range from 1 to up to 15 years. An unsecured loan term is shorter from 1 to 7 years.

Car loan fees explained:

As the good old saying goes, nothing in life is free! Unfortunately this applies to car loans too. Here are some fees and charges you may face:

  • Application fee: Also referred to as a ‘set-up’ or ‘establishment’ fee. An application fee is a one off payment when you open up your car loan.
  • Break cost fee: This is a charge or penalty you will receive when you pay off the full amount of the loan before the term is over. A break cost fee usually applies to a fixed rate car loan.
  • Ongoing fee: The idea of an ongoing fee is to keep your car loan alive! It may refer specifically to a maintenance or annual fee. It is paid throughout the loan term.
  • Discharge fee: Also known as a closing fee, a discharge fee is charged at the end of the loan period, to cover costs of terminating the account.
  • Late payment fee: If you fail to make a repayment on time you’ll be charged a late fee.
  • Early payout: If you default, transfer, or pay off your loan before the end of the term you’ll be slapped with an early payout fee.

What you’ll need when applying for a car loan

  • Identification: Make sure you can prove who you are; some lenders require two forms of ID. E.g. Birth certificate, passport, driver’s licence, utility bill with your name on it
  • Proof of income: Show the provider you have regular money coming in to repay the loan; Recent pay slips are helpful
  • Statements from financial accounts: The lender wants to be on top of all the accounts and or debts you might have such as a credit card or other personal loans. You’ll need to have copies of bank statements from the last 3 months.

If you're in the market for a new car loan, check out and compare the various car loan rates on the market right now.

Mozo Editorial
Mozo Editorial

Mozo’s team of experienced journalists and money experts provide news, insights, practical guides and expert analysis to help you master your personal finances. We follow editorial guidelines that focus on accuracy, reliability and timeliness; helping you make informed financial decisions with confidence and the most of your hard-earned money.