What to watch out for when getting a car loan
Australians shopping for a car loan are being warned to read the fine print carefully after ASIC found some lenders were selling loans that customers could not afford.
The regulator's investigation uncovered cases where borrowers were hit with thousands of dollars in fees, fell behind on repayments within months and were left owing large debts even after their vehicles were repossessed.
As demand for EV and hybrid finance continues to grow, experts say it's more important than ever to understand exactly what you're signing up for.
The Australian Finance Industry Association, which represents 150 banks and other lenders, says the value of loans for EVs and hybrid cars surged 20% to $7.37 billion in 2025.
More recently, CommBank and NAB reported a spike in demand for EV finance as motorists looked for ways to reduce fuel costs.
What's gone wrong with car loans?
ASIC has been taking a close look at loans provided by eight of Australia's biggest car finance providers.
In its examination of more than 350,000 loans given out between 2023 and 2025, the business watchdog found many were too expensive for the people they were being given to.
The findings didn't surprise Mark Holden, acting director of Mob Strong Debt Help, a legal and financial counselling service.
"We see a lot of [clients] being set up for loans that were inappropriate for them in the first place," he says.
"They go to a car dealership and get themselves on a loan, but they're not able to keep up and end up defaulting on it within the first six months."
Reporting its findings, ASIC described borrowers being hit with multiple fees totalling thousands of dollars.
In one case, a customer had to cough up almost $10,000 in administrative and handling charges - almost 20% of the value of the loan they had taken out.
ASIC says a key cause of the trouble is dealerships inflating the value of the cars they're selling, leading to borrowers still owing sizeable sums, even after their car has been re-possessed and sold.
"They have all the interest being added onto [the price] and then the car is re-possessed and they still have this massive shortfall to contend with," says Holden.
Summing up its concerns, ASIC said car finance providers weren't keeping a close enough eye on the third parties like brokers and dealerships who sell their loans and making sure these businesses treat customers properly.
The Australian Retail Credit Association, which represents several of the lenders included in ASIC's report, declined to comment on the regulator's findings.
How to avoid a car loan you can't afford
Pushy salespeople are synonymous with car shopping and this pressure can extend to the finance options you'll need if you're not buying a vehicle outright.
The dealership selling you your car might push you to get a loan there and then with their affiliated lender, but experts warn these convenient options can come with extra fees.
Therefore, it's a good idea to shop around different loan brokers to see what sort of credit they can extend to you, before going in to buy a vehicle.
A brokerage should be able to look for a loan that suits your personal situation, rather than a particular vehicle and will have more lenders to shop your options around to.
"We've generally got a lot more choice... we may have 40 to 70 different lenders to choose from, depending on what the client's looking for and what their situation is," explains Jenaya Kennett, founder and managing director of Pink Loans Financial, a brokerage. "We go and seek the best loan option for you based on your personal scenario."
But even when considering a broker's offers, it's important to check the details of the loan before you sign to make sure you can afford it (see how further below).
Also make sure you're being offered the right type of loan.
"Some people are being encouraged to use an ABN or to apply for an ABN, so [the lender is] able to sell it as a business-purpose loan," says financial counsellor Deb Shroot, who helps people facing unreasonable vehicle finance deals.
"The issue with that is there are certain protections like responsible lending obligations with consumer credit. With business credit, the same protections don't apply."
It's also worth remembering that if you're in a vulnerable situation or have a low income, you might be able to get access to a No Interest Loan (NIL) worth up to $5000 to go towards buying a vehicle.
What to do before signing a car loan contract
- Look for better deals: You don't have to get a loan from the dealership you're buying your car from. They may not offer the best deal, and their finance arrangements could include extra fees.
- Check the features: Watch out for a balloon payment or residual payment, a large lump sum due at the end of a car loan or lease. Also check the interest rate, fees, total loan cost, and what happens if you can't make a repayment.
- Consider the value of the car: Compare the value of the car you plan to buy with the total amount you'll repay over the loan term. If you need to sell the vehicle to clear the debt, the sale price may not cover what you still owe. This could leave you paying off the loan even after the car is gone.
- Make sure it's the right type of loan: Don't sign up for a business loan if the car is for personal use. Business loans do not come with the same legal protections as consumer loans.
- See if you qualify for extra help: If you're on a low income or in a vulnerable situation, you may be eligible for a No Interest Loan (NIL) to help buy a vehicle.
Can you get a cheaper loan for an EV?
If you're one of the growing number looking to finance a new EV, consider getting a personal green loan.
These are designed to help people buy more eco-friendly cars and can come with lower interest rates and fees than regular personal loans, but only limited options may be available.
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