Whether you're looking to buy a new or used car, it makes sense to shop around. Check the classifieds and car yards, compare vehicle makes and models, and keep your options open to find that perfect set of wheels.
The same principle applies when it comes to car finance. It's worth looking at the car loan market and comparing interest rates from different lenders, plus car loan features and extras. You can compare many car loans in one place at RateCity.
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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 much should I borrow with a car loan?
Before you start to compare car loans, it's a good idea to think about how much money you'd like to borrow, how much time you’ll need to pay it back, and how much you can afford to repay each month.
It's tempting to buy the best car possible and borrow the largest sum you can afford. But it might be more sensible to choose a more modest vehicle so your car loan repayments are more manageable. Some lenders offer different loans for new and used cars, so compare your options before choosing a vehicle.
Should I borrow 100% of the purchase cost?
If you aren’t borrowing 100% of the purchase cost, you might be offered a lower interest rate.
This is similar to how you can save a bit of money when buying a home if you have a deposit worth 20% of the price, which allows you to avoid lender’s mortgage insurance. In the same way, providing more money upfront for a new car might get you a lower interest rate on a car loan.
When working out the length of your car loan, remember that the shorter your loan term, the higher your repayments will be each month. But if you go for a longer loan term with smaller monthly repayments, you'll pay back more in interest costs over the life of the loan.
New vs used cars
However, because used cars tend to be cheaper than new cars, you shouldn't need to borrow as much money to start with.
How to compare car loan interest rates
The most obvious place to start comparing car loans is with the interest rate. This is the extra percentage you'll have to pay on top of the amount you borrowed, which is known as the principal.
Generally, the lower the interest rate, the cheaper the deal. Just remember the fees and charges when calculating the loan’s total cost.
When researching interest rates, you should also look at the comparison rate. This combines a loan's advertised interest rate with its standard fees and charges, giving you a more accurate idea of its overall cost.
Watch out for any extra fees and charges that aren’t included in the comparison rate. Check with your lender if any of these apply.
How to compare variable and fixed car loans
If you're looking to finance the purchase of your dream car, you will need to choose between a fixed rate or variable rate car loan.
Fixed rate car loans
Choosing a fixed rate car loan means agreeing in advance to pay a set amount of interest with each monthly repayment. Because your interest rate is locked in from the start of the loan, your monthly repayments will always be the same, which can help make budgeting much simpler.
The downside of fixing your car loan interest rate is that if your lender cuts rates, you won't get to enjoy the savings. Plus, if you're locked into a fixed car loan plan, you may lose some repayment flexibility.
Variable rate car loans
If you choose a variable rate car loan, your lender could change the interest rate at any time. If there's a rate cut, you'll pay less interest and your repayments will go down. But if there's a rate rise, you'll pay more interest and your repayments will go up.
This can make it trickier to budget for a variable rate car loan than for a fixed rate car loan, though many variable rate car loans offer flexible repayment options and other features.
How to compare secured and unsecured car loans
Many car loans are secured, which means the money you borrow is guaranteed against the value of an asset – usually the car you're purchasing. If you don't make your repayments, the lender may seize your car to recover its losses.
This financial security means lenders often offer lower interest rates for secured loans. However, some lenders only offer these loans for certain car models, or for cars under a certain age, to ensure the car's value is sufficient to secure the loan.
Unsecured loans don't require security, so you can use them to buy a greater variety of vehicles. However, because unsecured loans are riskier to lenders, they often have higher interest rates than secured car loans do.
What to look for when comparing car loans
- Early exit/extra repayment penalties: Paying extra on a car loan can help you get ahead on your repayments, or even pay your car off early, which can reduce the interest you’re charged. However, your lender may charge fees for these features.
- Redraw facility: If you make extra car loan payments, a redraw facility will allow you to take this money back out if you need it. Just check the lender's terms and conditions.
- Personal Property Securities Register (PPSR) check: If you're buying a used car, it's important to check if it has money owing on it from a previous owner, also known as a financial encumbrance. You can organise a PPSR check (formerly known as a REVS check) before getting your car loan. Your lender may be able to handle this for you, though they may charge a fee.
- Deposit: Unlike a home loan, you don't always need a deposit for a car loan. If your credit is good but you don’t have much in savings, you may still qualify for a low-deposit or no-deposit car loan. As these loans are riskier to lenders, they tend to have higher interest rates.
- Terms and conditions: You will need to examine the terms and conditions of every car loan you consider to understand all the fees and costs involved, as well as the features.
How to compare car loans
RateCity compares loans from a range of different lenders all in one place, so you can look at them side by side. This can save time and quickly deliver the information you need to make a more informed decision.
Once you've looked at the available rates, and have compared other features, costs and benefits, you can narrow down your car loan shortlist.
Compare the options, find the right car loan for you, and get on the road!
Your credit history is a record of the dealings you’ve had with credit providers such as banks, credit card companies, mobile phone companies and internet companies. Your credit history records how successfully you’ve managed your repayments. It also records how many credit applications you’ve made and how many of those were rejected.
Credit providers refer to your credit history when deciding whether or not to extend you credit. Missing repayments is a bad sign; making too many applications or having applications rejected can also be a bad sign.
Credit infringements can remain on your credit history for five years – or seven years for serious infringements.
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.
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.
There’s no set number. That’s because borrowing capacity differs from person to person, as well as lender to lender.
Lenders don’t give out car loans unless they’re confident they’ll be repaid. Each person is different, so the amount of money one person can successfully borrow will differ from another person’s number. Also, each lender uses its own formulas to calculate borrowing capacity – so Mr & Mrs Smith might find that while Lender X will give them a car loan for $20,000, Lender Y will offer only $18,000.
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.
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.
Rachel Wastell is an award-winning writer with a knack for translating complicated subjects. She is a strong environmental advocate, and is as passionate about the planet as she is about finance and open education. Writing professionally for almost ten years, Rachel's work has been published across the Australian media landscape including the Australian Financial Review and The Guardian, and she regularly contributes to Business Insider and Lifehacker.