When you take on a new car loan, you’ll typically agree to loan terms and repayments that fit comfortably within your budget in order to limit the possibility of ending up in financial strain. Down the track, however, you might come into some extra cash from, say, your tax return, a bonus at work, or even a pay rise.

It’s understandable that you might want to utilise that lump sum or increased budget to make some additional repayments on your car loan. This could mean that you end up paying it off a little earlier and/or reducing the total interest paid over the life of the loan.

It’s important to note, though, that it’s not always as straight forward as just paying a bit extra whenever you’ve got the cash. Different loans have different features, and while some may allow extra repayments, others might charge a fee, have a limit or not allow it at all.

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How do extra repayments work?

Making an extra repayment means paying money into your car loan account that’s additional to the regular repayments specified by your lender. This may occur as a one-off lump sum that is paid separately from your regular repayments, or by simply increasing the amount you pay for your regular repayments. The way in which you make extra repayments on your car loan will generally be determined by your lender.

Extra repayments happen within the loan term, and do not amount to repaying the loan in full. Early repayments, on the other hand, are when you pay off your loan in its entirety before the end of the loan term.

Why should I make extra repayments on my car loan?

Generally speaking, most borrowers who choose to make extra repayments on their car loan do so with the intention to save money. Making additional repayments on your loan will typically reduce the principal – or the remaining amount owed, which will in turn likely reduce the amount of interest you’ll pay over the life of the loan.

If you make extra repayments on your car loan, you could also end up paying it off before the end of the term, meaning you’ll own your car sooner.

Are there any restrictions around extra repayments?

When shopping for a car loan, it’s important to consider what features are included in each product. Some car loans will allow for extra repayments, while some may not.

Variable rate car loans will often be more likely to include an extra repayment feature than fixed rate car loans, though there is still a selection of fixed rate loans that will.

Loans that do allow extra repayments may also come with a redraw facility, which means any money you’ve paid into your loan account that is additional to your regular repayments can be taken back out if/when you need it. Keep in mind that there can be limits to how much you can redraw.

Making a car loan comparison on RateCity can help you determine the types of loans that allow for extra repayments, redraw facilities and other features.

Will I be penalised for making extra repayments?

Depending on the terms and conditions of your loan, you may be charged a fee for making extra repayments. It’s important to weigh up any potential fees and charges with the possible savings you might make from putting extra repayments on your car loan.

If your loan has a redraw facility, you could also be charged for redrawing any extra repayments from your account.

Many lenders also have restrictions on the amount you can repay in excess of your regular repayments, and if you go over this you could face a penalty fee. Early repayment fees and early exit fees are also something to be mindful of if you end up paying off your loan before the end of your loan term.

For more information specific to your personal financial situation, consider contacting a financial advisor.

Advantages and disadvantages of extra repayments
  • You could save money on interest charges over the life of your loan
  • You may pay off your loan early
  • You might end up owning your car sooner
  • There could be fees involved that outweigh any potential savings
  • Not all car loans offer extra repayments
  • If you make an extra repayment and your loan doesn’t have a redraw facility, you typically won’t be able to access your money when you’re short on cash

Frequently asked questions

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 are repayments?

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

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.

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.

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.

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.

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.

What is proof of income?

Before giving you a car loan, lenders will ask for proof of income – documentary evidence that you earn as much as you claim you earn. Lenders will typically want some combination of tax returns, pay slips and bank statements. The reason lenders want proof of income is because they want to be sure you have the means to repay the car loan.

What is a dealership?

A dealership is a car yard or a place where cars are sold.

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 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 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 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 CTP insurance?

CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.

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.

Can I get a car loan with bad credit?

Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

What is salary packaging?

Salary packaging is an arrangement you can make with your employer that can allow you to buy a car from your pre-tax salary. The advantage of salary packaging is that it will redue your taxable income.

What is an establishment fee?

Some lenders will charge you an establishment fee, or one-off upfront fee, to cover the cost of setting up your car loan.