Who doesn't love a bargain? Minimising costs when searching for a car loan is a key part of the process.
Finding the ‘cheapest’ car loan to suit your needs and budget doesn’t have to be a challenge. There are a few tricks you can learn to ensure you find the right car loan at the right price.
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Lenders getting increasingly personal with their car loans
A growing number of car loan lenders are offering personalised interest rates.
How to find the cheapest car loan
When it comes to finding a cheap car loan, start with comparing interest rates. The lower the rate, the less you'll need to pay back in interest expenses 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:
Fixed 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’ll 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.
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.
Can you avoid hidden car loan costs and fees?
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
When choosing your car loan, use comparison tables to see which fees the lender charges, helping you to find the cheapest loan. Avoiding fees is as simple as doing your research and utilising comparison tools. For example, there are currently 208* car loan products that do not charge ongoing fees on RateCity’s database. There are also 14* car loan products that don’t charge application fees. Compare loans and save.
*Data accurate as at August 2019.
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 affordability. This 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)|
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.
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 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.
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.
Are you the ideal borrower?
It’s important to keep in mind that while you’re looking for the best bank, the banks 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 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.
A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.
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.
You don’t need good credit to get a car loan, although the worse your credit history, the harder and more expensive it’s likely to be.
Some lenders will do business only with borrowers who have good credit. However, there are other lenders that are willing to offer car loans to borrowers who don’t have good credit. The catch, though, is that they may charge higher interest rates and fees, and also require more paperwork.
If you don’t have good credit and want a car loan immediately, you can search for lenders that work with bad credit borrowers. If you are able to wait, you can work to improve your credit score and then apply for a car loan once you have good credit.
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.
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.