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Learn more about car loans

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. Here’s what you need to consider:

Comparison rates vs advertised rates

To get a more accurate idea of the relative costs of different car loans, 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 interest rate will remain steady during the fixed period even if rates rise across the market. However, you won't enjoy any savings if interest rates fall as your repayments 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.

Extra repayments feature

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 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.

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.

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. These fees can include, but are not limited to:

  • Application 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

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.

How much will your car loan repayments be? 

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

Car loan amount Monthly 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 monthly fees 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.

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.

Which is the best bank for a cheap car loan?

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.

How to find cheap Australian car finance in your city

Whether you're looking for a car loan in Sydney, Melbourne, Brisbane, Perth or even a regional area, comparing car loan options online can save you the hassle of shopping around. 

RateCity has a database of over 90 lenders, including both nationwide and local car loan providers. Many lenders have an online application process, so you don't even have to leave home to apply.

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. 

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.

Frequently asked questions

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.

What are loan repayments?

Loan repayments are the regular payments you make to pay off your car loan. Loan repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

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.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

What is an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

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.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

Can I get a car loan with poor credit?

Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments. 

What is repayment frequency?

Repayment frequency is how regularly you have to make car loan repayments to your lender. The most common repayment frequency is monthly, but many lenders will also give you the option of making fortnightly or weekly repayments.

What is a pink slip?

A pink slip is another name for the safety check that needs to be done before a car owner can renew the vehicle’s registration.

What is a car lease?

A car lease, also known as an asset lease or finance lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back. 

What is a car loan calculator?

A car loan calculator is an online tool that helps consumers understand how much they would have to repay under different scenarios. Consumers can create these different scenarios by entering different borrowing amounts, interest rates, loan terms and repayment schedules into the car loan calculator.

What is a variable-rate loan?

A variable-rate loan is one where the lender can change the interest rate whenever it wants. For example, if you sign up for a variable-rate loan at 8.75 per cent, the lender might change the interest rate to 8.90 per cent the month after and then 8.65 per cent the month after that. By contrast, if you take out a five-year fixed-rate loan at 8.75 per cent, the lender is obliged to leave your interest rate at 8.75 per cent for at least five years.