Low Interest Car Loans
Whether you’re looking for a car loan, a personal loan, or a home loan, it’s usually worth looking for one with a low interest rate, so you can pay less from month to month, and over the lifetime of the loan.
However, it’s also worth comparing the other features offered by a low interest car loan, to make sure you’re getting a deal that’s right for you. At RateCity, not only can you compare car loan interest rates side by side, but also get a better idea of the fees, charges, and other benefits of each lender, in order to make a more informed decision.
Consider the Comparison Rate
While one of the simplest ways to find a cheap deal on a car loan is to compare the advertised interest rates, these may not accurately reflect the total cost you’ll likely end up paying on top of your car’s value. A low interest car loan with high ongoing fees and charges may end up ultimately costing you more than a higher interest car loan with lower fees and charges.
Enter the Comparison Rate. This figure combines a car loan’s interest rate with its standard fees and charges, and expresses them as a single percentage that offers a more accurate estimation of how much extra you may end up paying back on your car loan.
Remember that a car loan’s comparison rate only summarises its standard fees and charges, and may leave out other costs associated with a particular loan. Also, the comparison rate doesn’t account for the extra features and benefits that could influence your decision, so be sure to do a little extra research settling on a low interest car loan.
Securing a low interest car loan
To get the lowest possible interest rate on your car loan, you’ll need to prove that you’re a relatively safe risk for the lender. Having a stable income and a good credit history can be a big help, but so is opting for a Secured Car Loan. In this arrangement, the balance you borrow is guaranteed against the value of the car you’re buying. Even if a borrower doesn’t pay back a lender, the lender can still make up this loss by repossessing and selling the borrower’s car. This extra financial security for lenders often translates into lower interest rates for borrowers.
That said, qualifying for a secured car loan isn’t always easy, as lenders want to be confident that the car’s value will cover the financial losses of a potential default. Thus, secured car loans may not be available for certain car models, or cars over a certain age, depending on the lender.
If the car you’re looking at doesn’t qualify for a secured car loan, or if you’d prefer not to risk potentially losing your car if repaying your car loan becomes a problem, you could instead opt for an unsecured car loan, which will likely have a higher interest rate.
Fixed vs variable interest rates
Once you find a car loan with an interest rate and/or comparison rate that’s low enough to afford, you may want to make sure that it will stay affordable. If you choose a low interest car loan with a fixed interest rate, the amount of interest you’ll pay on your car loan will be set in advance and remain in place for the lifetime of the loan. Even if there are rate rises across the market across the market, your interest rate will remain the same, with every repayment bringing you one step closer to owning your car outright.
A consistently low car loan interest rate sounds pretty good, but what if your interest rate could get even lower? A variable interest rate on your car loan is adjusted from month to month by the lender. If rates are cut, your repayments may shrink, saving you even more money. Of course, interest rates could also rise, and bring up your repayments with them. This can make preparing your budget in advance more challenging, and leave you at risk of finding yourself out of pocket.
Can you pay less interest by repaying your loan faster?
If one of the reasons you’re looking for a car loan with a low interest rate is to avoid paying a lender too much more on top of your car’s value, it’s often worth considering making additional payments on your car loan. By getting ahead in your car loan repayments, you’ll be bringing yourself closer to getting it fully paid off and making an early exit from the loan, which should reduce the total amount of interest you’ll need to pay over the lifetime of your loan, saving you money.
However, this isn’t a valid options for every car loan and financial situation. Some lenders charge fees for making additional repayments or exiting a loan early, to compensate for the interest payments they’d be missing out on. Fixed rate car loans tend to carry more restrictions, often locking borrowers into tight repayment plans. Variable rate car loans tend to have more flexible repayment arrangements, though some lenders do still charge these fees.
Do you want a car loan with added flexibility?
If your low interest car loan allows you to easily make extra repayments, there’s sometimes an added benefit beyond just bringing you closer to exiting your loan early. If your car loan also includes a Redraw Facility, you’ll be able to pull the extra money you’ve paid onto your car loan back out again if required (subject to the lender’s terms and conditions), such as when a surprise financial emergency leaves you needing some cash back in your pocket.
As well as adding extra flexibility to your car loan, a redraw facility can help you make those extra repayments with confidence – you’ll be able to get ahead in your loan without locking up your spare cash in your loan and losing access to it altogether.
Will you need a deposit?
If you’re hoping to get a low interest rate on your car loan, you’re more than likely going to need to pay the full deposit required by your lender, to better ensure your loan’s security and reduce the lender’s financial risk. While some lenders offer loans with a higher Loan to Value Ratio (LVR) that only require smaller deposits, or 100% loans, which require no deposits, these loans represent higher financial risks to their lenders, which means higher interest rates. So if you have your heart set on a low interest car loan, it’s usually worth making sure you have some savings available for a deposit.
Checking your car’s financial history
If you’re buying a car that’s been owned before, even if it’s young enough to count as “new” for the purpose of taking out a car loan, it’s usually worth applying for a report on its financial history from the Personal Property Securities Register (PPSR), formerly known as a REVS check. This will let you know if the car still has money owing on it from a previous owner, AKA a financial encumbrance. While you can organise one of these reports yourself, you may be able to save a bit of time and hassle by having your lender handle it for you while they’re organising your loan, though some lenders may charge a fee for this service.
Compare low interest car loans
At RateCity, you can find a wide range of car loans available from a variety of lenders, and organise your options to find the car loans offering the lowest advertised interest rates and comparison rates.
Remember though that a low interest rate shouldn’t be all that you look for on your car loan – take a closer look at the features and benefits offered by different lenders to work out which car loan will provide you with the most value for your financial situation.