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How to find the cheapest car loan

When it comes to finding a cheap car loan, it's always worth shopping around to find a good deal instead of settling for the finance company that might be recommended by the dealership.

Whether you're in the market for a new vehicle or used vehicle loan, a great place to start your search is to compare interest rates. The lower the rate, the less you'll need to pay back in interest charges over the life of the loan, especially if you repay the loan quickly. 

However, there is much more to a car loan than interest rates. 

Comparison rates vs advertised rates

A car loan is a type of personal loan, used to borrow money to buy a vehicle. You'll pay this money back to the lender, plus an extra interest charge. The rate at which interest is charged on a car loan will affect the cost of your repayments. 

For many people who want a cheap car loan, they start by searching for a low interest rate being advertised by a lender. However, fees and other charges can make a low rate car loan  cost more than you may expect. 

To get a more accurate idea of the relative costs of different car loan options, check out the comparison rates, which combine each loan's advertised interest rate with its standard fees and charges. That way, you'll be able to tell if a cheap car loan really is cheap. 

Keep in mind that even the comparison rate won't include every additional cost, such as any non-standard fees and charges. It's also worth looking beyond the comparison rate and working out whether the features and benefits of different car loans will provide greater value to you.

Fixed rate or variable rate

If you fix your car loan, the fixed interest rate will remain steady during the fixed period even if rates rise across the market. However, you won't enjoy any savings if variable interest rates fall as the repayments for your fixed rate car loan will remain the same.

If you choose a variable rate loan, your repayments could drop if interest rates fall. However, don't forget that your repayments will increase if your lender raises their rates – which could happen at any time with a variable loan.

Secured or unsecured loan

Secured car loans tend to have lower interest rates than unsecured loans. By using an asset, usually the car, as collateral for the loan, the lender knows it can repossess it if you default on your repayments. This makes lending money to you less risky.  

Some lenders only offer secured car loans to borrowers who are buying new cars or used car models under a certain age. If you don't meet that criteria, you may not be able to get a secured loan with a lower rate, so you may find yourself paying more for a used car loan than you would for a new car loan.

Extra repayments

Some car loans allow extra repayments. Making extra repayments and repaying a loan earlier means you may pay less in interest charges. This allows you to make a car loan even cheaper. Keep in mind that some lenders charge early exit fees or early repayment fees if you pay your car loan off early. This lets them make up for the interest they'll be missing out on if you repaid the loan over the full term.

Some car finance lenders also offer the option to redraw your extra repayments from a car loan if you need to access this money again, for greater flexibility, though redraw fees may apply here.

Length of the loan

Want an affordable car loan? Consider what's more important to you: cheaper repayments in the short term, or paying less in interest costs over the longer term. Car loans can typically be paid back over one to ten years. 

The length of your loan will influence the affordability of your repayments and total interest paid. A longer car loan term means you'll be making more repayments over time, but they’ll be smaller than if you repaid the loan over a shorter period. However, this also means being charged interest on more occasions, increasing the total amount you'll pay the lender.  

Shortening the term of your car loan will boost the size of your repayments and each one will repay a greater loan amount. However, the faster you pay off your car loan, the less you'll pay in total interest. 

Another option that may work for some borrowers is a balloon payment, which is a lump sum paid at the end of the loan term. This can help to both shorten the loan term and lower the monthly repayments, but borrowers must be confident that they will be able to fulfil the significantly larger final repayment.

Ultimately, you'll have to decide what's more important to you - cheaper repayments now or paying less in total interest. In other words, each person needs to decide on their own definition of a ‘cheap’ car loan.

Are you the ideal borrower?

It’s important to keep in mind that while you’re looking for the best Australian lender, the lenders are looking for the ideal borrower.

Your definition of a cheap car loan might be one with low monthly repayments and a low interest rate. So, how do you get a low interest rate? One way is to make yourself less of a risk in the lender's eyes.

How to know if you’re an ideal borrower:

  • You meet the eligibility criteria - this may differ from one lender to the next, but many require borrowers to meet the following:
    • Aged 18 years or older
    • Australian citizen or permanent resident
    • Meet a minimum income amount - lenders may request payslips for evidence
  • You have a very good to excellent credit score
  • If rates increased by 2 per cent to 3 per cent above what you’re currently paying you could still meet repayments
  • You have a steady income  
  • You have your expenses under control (credit card debt etc.)

Your credit score will show lenders how much risk you pose to them as a borrower, based on your credit history. Excellent credit scores will help you get the lowest interest rate possible.

If you have a less-than-average credit score, a lender may charge you a higher interest rate on your car loan. This helps them to account for any potential losses if you were to default on the loan. There’s also a risk they may reject your application altogether, such as if you have bad credit. 

Before you submit a loan application for any financial product, be sure to read the product disclosure statement and check for any disclaimers. For information on credit products specific to your personal financial situation, consider speaking to a financial adviser or car loan broker.

Costs to consider when searching for the cheapest car loan in Australia

In addition to the interest rate, there are many costs and fees associated with a car loan. Some are inescapable, but you can avoid some, saving you money in the long run.

Fees

It’s worth comparing all of a loan product’s fees and charges in order to get a clear picture of the true cost of the loan.

These fees can include, but are not limited to:

  • Application fee or establishment fee
  • Ongoing fee (e.g. annual fee) 
  • Late payment fee 
  • Break cost fee (if you pay off the loan before full term is over) 
  • Discharge fee

Registration

Registering your vehicle is a significant ongoing cost of owning a car. While car registration is often handled separately to your car loan, some lenders allow borrowers to add this cost onto their car loan so it can be paid off gradually over time, rather than in one lump sum.

It’s important to note that adding registration onto your car loan will increase the amount you’ll need to pay back, which can increase your monthly repayments. Additionally, you’ll be paying interest on the cost of car registration, which can cost you more over time.

Insurance

Similarly to registration, car insurance is another significant ongoing cost to consider when you’re budgeting to buy a car. Compulsory Third Party (CTP) insurance is a requirement, and comprehensive car insurance can help to provide additional cover and peace of mind.

Again, similar to registration, some lender may allow you to add the cost of car insurance onto your car loan, to be repaid in instalments over time. While this may help to ease some of the short-term pressure on your household budget, you may pay more over time when you consider interest charges.

Which bank offers the cheapest car loans?

The ‘best bank’ for you will depend on a range of factors, and not necessarily be the best option for another borrower. You need to do your research around what you want in your car loan.  

Even if you find a bank which offers the lowest car loan interest rate, that's no guarantee you'll be getting the cheapest possible deal or decent service. A car loan with a low interest rate but high ongoing fees and charges may turn out to be more expensive than a high interest rate alternative where minimal fees are charged. 

Comparison tables are a useful tool that helps you narrow down the best bank options that suit your requirements. Apply your criteria to the filters and you can narrow down your search. Find and compare loans that suit your budget and needs.

Compare car loans from lenders across Australia

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How much will my car loan repayments be? 

You can use a car loan calculator to estimate your car loan repayments and vary loan amounts to determine affordability. This is a helpful tool to see whether a loan suits your budget.

Car loan amountMonthly repayment amount (no ongoing fees)Total cost of loan (no ongoing fees)Monthly repayment amount (including ongoing fees)Total cost of loan (including ongoing fees)
$10,000$210$12,600$220$13,201
$15,000$315$18,900$325$19,502
$20,000$420$25,200$430$25,802
$30,000$630$37,800$640$38,403
$40,000$840$50,400$850$51,004

Note: Calculations based on interest rate of 9.5 per cent and loan term of 5 years. Ongoing monthlyfees are $10. Does not include upfront costs. 

Using this example, you can also see the impact of ongoing fees on the total loan cost. In some instances, you’ll end up paying hundreds of dollars extra. Using RateCity’s car loan comparison table, you can click on the ‘more detail’ button to view all of a loan’s fees.

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Can I get a cheap car on finance with no deposit?

Unlike some other forms of finance, such as a home loan, you won't necessarily be required to put down a deposit on car finance. Some lenders will allow you to borrow the full purchase amount of the car you wish to buy.

But, while it’s not always essential, other lenders may insist on it as a way of reducing risk.

If you do have some money set aside for a deposit, you may find that it could work in your favour by increasing your chance of approval, potentially allowing you to access a more competitive interest rate and reducing your repayments.

Whether you pay a deposit on your car loan or not will ultimately depend on your personal circumstances. Doing your calculations and weighing up your options can help you make a well-informed decision. Just remember to keep enough cash in your savings account to cover car running costs like registration and maintenance.

How do I find the cheapest car loan rates?

RateCity offers several methods to compare car loans, whether you’re looking for the options with the cheapest repayments, the most useful features and benefits, or a balance of the two.

  • Using RateCity’s comparison tables, you can quickly view a car loans from a range of banks and other lenders side by side. Using the filters to narrow down your options, you can compare only the car loans that suit your financial situation, and sort your results by their interest rate to help you find some of the lowest rate options. Remember to check the comparison rate to get an idea of the overall cost of a car loan, including  both interest charges and standard fees.
  • Car loan calculators can help you estimate the repayments you may be in for with different car loans. After calculating your repayments, you can compare car loans that may match your requirements, which may come closer to suiting your financial situation.
  • You can also contact a car finance broker for more personal advice on the best choice of cheap car loan for your needs. Much like how mortgage brokers help borrowers navigate the home loan market, car finance brokers are experts in the fields of personal and vehicle finance, and can assist you at every stage of searching and applying for a car loan that suits your personal goals and financial situation. Simply contact a car loan broker in your area today to start benefiting from their local knowledge of the market.
  • RateCity’s Real Time Ratings™ combine the cost and flexibility of car loans into a single simple star rating, giving you a better idea of the overall value of different car loans. These ratings are updated every day, so you can be more confident in their accuracy at any given time. You can compare some of the top rated car loans in individual categories at RateCity’s Leaderboards, and some of the top-rated car loans may also receive the gold badge of a RateCity Award.

Remember that even if you can't get the cheapest rates when you first apply for your car loan, you may be able to refinance further own the track. If your financial situation has changed, you may be able to qualify for a car loan with lower rates and/or lower fees, allowing you to save some money. But before you start the refinancing process, check if fees or charges apply, and remember that extending your car loan term may lost you more money in total, even if your new interest rate is lower.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Can I get a discounted student car loan?

Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.

Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.

As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.