How to find a cheap car loan
How would you like to save money on your car loan? Are you hoping to make smaller repayments from month to month? Or were you thinking more about the total amount of interest, fees and charges you’ll pay over the lifetime of your car loan?
At RateCity, you can compare different car loan options, and work out which offers from which lenders can help to save you money. What’s more, you can learn more about which car loans offer additional features that could be ideal for your financial situation, allowing you to enjoy greater value for money from your cheap car loan.
What is a cheap car loan?
When searching for a cheap car loan, it’s worth considering what’s more important to you – cheaper repayments in the short term, or paying less interest over the longer term. Some people don’t realise that a loan that’s cheaper in the short term might be dearer in the long term, and vice versa.
Some car loans can be paid back over the course of anywhere from one year to 10 years, and the length of your loan term can have a big effect on both the affordability of your repayments, and how much interest you’ll end up paying in total.
By stretching out your car loan over a longer period, you’ll be making a larger number of repayments, each one for a smaller percentage of the car loan’s principal, keeping your loan more affordable from month to month. But this also means being charged interest on more occasions, increasing the total amount you’ll be paying back to the lender.
Shortening the term of your car loan can make your monthly repayments more expensive, as each one will cover a greater percentage of the loan. However, the faster you can pay off your car loan, the less you’ll pay in total interest on top of the loan’s value.
So, ultimately, you’ll have to decide what’s more valuable to you – cheaper repayments now, or paying less in total interest on your car loan. In other words, each person needs to decide on their own definition of a cheap car loan.
Is petrol more expensive before holidays?
It is a myth that petrol prices increase by more than usual just before public holidays and long weekends, according to the Australian Competition & Consumer Commission (ACCC). “Our detailed review of prices in the five largest cities around every public holiday found that, on average, public holiday price increases were no larger than the usual price cycle increases during the year. These price rises may be more noticeable before holiday weekends because many motorists are making long trips and using more petrol than usual.”
What type of cheap car loan should I choose?
When it comes to finding a cheap car loan, comparing the advertised interest rates is the logical place to start. The lower the interest, the less you’ll need to pay back on top of your loan, and the cheaper your monthly repayments will be.
One thing to consider is whether to choose a fixed or variable car loan. If you find a cheap car loan and fix the rate, this interest rate will remain steady during the fixed period, even if rates rise across the market. However, you you also won’t get to enjoy the savings from cheaper repayments if the lender cuts rates.
If you choose a variable interest rate for your cheap car loan, your car loan repayments could get even cheaper if rates fall. However, don’t forget that your repayments would increase if the lender raised rates – which it would be allowed to do at any time.
How to find cheap car loans
Even if you find the car loan with the lowest interest rate currently on the market, that’s no guarantee you’ll be getting the cheapest possible deal. A car loan with a low interest rate but high ongoing fees and charges may turn out to be more expensive overall than a higher-interest car loan with lower fees and charges.
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 associated with a particular car loan, 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 for your money.
How to qualify for cheap car loans
What is a cheap car loan? It’s one with low monthly repayments, which in turn means 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.
One way to help reduce your lender’s risk is to opt for a secured car loan, where the money you borrow is guaranteed against the value of the car you’re buying. If you default on your loan repayments, the lender will repossess your car and sell it to reclaim its value.
Some lenders only offer secured car loans to borrowers who are buying new cars, or certain used car models under a certain age, to better ensure the car retains enough value to guarantee the loan. So if you don’t meet that criteria, you may not be able to get a cheap car loan.
If the car you’re buying doesn’t fulfil this criteria, you may be able to opt for an unsecured car loan instead. While these loans can be used to purchase a greater variety of different vehicles, their interest rates can be higher than those of similar secured loans.
How to make a cheap car loan even cheaper
If you’ve got your heart set on making your car loan as cheap as possible, there are a few useful features to keep an eye out for. One of these is the ability to make extra repayments, because closing a loan earlier means fewer interest charges. So you can proactively make a cheap car loan even cheaper.
Keep in mind, though, that some lenders charge early exit fees if you pay your car loan off early, to make up for the interest they’d be missing out on. Make sure that paying off your car loan early doesn’t accidentally cost you more than you expected!
Some car loans come with a redraw facility – a feature that allows you to claim back any extra repayments. This means you can get ahead of your repayment schedule while also reserving the right to redraw that extra money if you’re ever short of cash.
Why do petrol prices go up and down?
There are four reasons petrol prices rise and fall, according to the Australian Competition & Consumer Commission (ACCC):
- Changes in international benchmark prices
- The value of the Australian dollar
- Local market competition
- Pricing decisions by wholesalers and retailers
How can I find out if a used car has money owing?
The good work of finding a cheap car loan can be undone if you buy a used car that has a financial encumbrance, or money owing from the previous owner. So if you’re taking out a car loan for a used car, you might want to order a report from the Personal Property Securities Register (PPSR).
Formerly known as a REVS check, this report will let you know if the vehicle does, indeed, have a financial encumbrance. Some car loan providers will be willing to do a PPSR check for you as part of the loan process, although you might be charged a fee.
Who offers the cheapest car loans?
If you’re in the market for a car loan, you can get one from the big four banks, medium-sized banks, mutual banks, credit unions, building societies and non-bank lenders. Given that there are so many lenders in the market – and given that lenders regularly change policies and rates – it’s impossible to say that one lender always has the cheapest rates.
Another point worth mentioning is that lenders price car loans differently depending on a range of variables:
- Your loan size
- Your loan term
- How much of a deposit you have
- Whether your loan is fixed or variable
- Whether your loan is secured or unsecured
- Whether you’re buying a new or used car
So a particular lender might offer the cheapest loans for people who, say, want to take out $15,000 unsecured loans for used cars over five years, but might offer relatively expensive loans for people who want $30,000 secured loans for new cars over seven years.
The lesson, then, is to do your research before taking out a car loan. A comparison website like RateCity is a good place to find a cheap car loan. Another option would be to use a finance broker, who is likely to be familiar with the products and policies of a range of lenders.
Another point to remember is that the car loan market is always changing. So just because a particular lender offered the cheapest car loans the last time you bought a vehicle, don’t assume that it will still offer the cheapest car loans on the market.