Fixed rate car loans
Buying and owning a car can be an expensive proposition, with its fair share of risk attached. If you’d rather not invite additional headaches and complications into your life along with your new or used set of wheels, a fixed rate car loan may be worth considering.
By fixing the interest rate and repayment terms of your car loan well in advance, you can keep your personal finances under control and hopefully avoid experiencing any expensive surprises.
Why choose a fixed interest rate?
You’re always going to have to pay interest on your car loan in addition to the value of your car. The question is whether to pay a fixed rate of interest, which will remain the same for the lifetime of the loan, or a variable rate of interest, which will be raised or lowered by the lender according to the prevailing economic conditions.
The biggest benefit of a fixed rate car loan is the simplicity and stability that it offers. By agreeing in advance to pay a fixed rate of interest, your car loan repayments will remain the same every month for the lifetime of your loan, even if the lender is otherwise raising its interest rates across the board. Every month you’ll come one step closer to owning your car outright, and because you’ll know exactly how much you’ll need to pay well in advance, you can budget your finances accordingly.
Keep in mind though, because these car loans have their interest rates fixed in advance, you won’t get to enjoy the savings if interest rates start dropping. Choosing a variable rate car loan would allow you to benefit from these rate cuts, though they could also leave you out of pocket if you don’t carefully budget for the possibility of your lender raising its interest rates.
Looking beyond the interest rate
While the car loan with lowest advertised fixed interest rate may sound appealing, it may not offer the greatest value for your household, or be the loan most suited to your unique financial situation.
Even if a fixed rate car loan advertises a low interest rate, you’ll still have to pay fees and charges in addition to the interest repayments, which could make a low-interest car loan ultimately more expensive overall than a higher-interest car loan with lower fees and charges.
One way to get a better idea of a car loan’s total costs is to check its Comparison Rate. This figure combines the loan’s advertised interest rate with its standard fees and charges, expressing the total as an approximate percentage.
It’s also worth noting that even a car loan with a low comparison rate may have additional nonstandard fees, charges and other costs, so it’s worth using the comparison rate as a guideline to narrow down your choices before doing some more research to help you make your final decision. Also, when comparing different car loans, you should look at which features and benefits they offer beyond their interest and comparison rates, and determine which of these would best match your current financial situation.
Will securing your car loan offer greater stability?
Many of the fixed rate car loans currently available on the Australian market are also secured car loans, where the money that you borrow is guaranteed against the value of the car you’re purchasing. If you default on your loan repayments, the lender will repossess and sell your car to make up for its losses. Because this arrangement reduces the lender’s risk, you’re more likely to enjoy a lower interest rate with a secured car loan.
However, to help better guarantee the loan against the value of the car, some lenders will only make secured loans available to buy cars of particular makes and models, or cars under a certain age.
If the car you’re buying doesn’t qualify for a secured loan, or if you’d prefer not to risk potentially losing your vehicle, some lenders also offer unsecured car loans. While these loans don’t require additional security, they also tend to have higher interest rates, due to the increased risk to their lenders.
Want to exit your car loan early?
Imagine you’ve taken out a car loan with a fixed interest rate, and have been comfortably managing your repayments. One month, you find yourself with some extra funds available, possibly from a tax refund, a bonus, or an inheritance. Why not put this extra money to good use by making an extra repayment on your car loan, or even paying the loan off entirely and making an early exit?
Unfortunately, fixed rate car loans often also have fixed repayment plans, with fees and charges for making extra payments or exiting the loan early. Some fixed rate car loans will allow you to get ahead on your repayments and complete paying your loan early without penalties, but many lenders will charge the additional fees to help make up for the interest payments they’d be missing out on if you finish your loan before its pre-set term is up.
Variable rate car loans tend to have more flexible arrangements than many fixed rate car loans, so if you expect you may want to put extra money towards your car loan in the future, check the lender’s terms and conditions and make your decision accordingly.
Will your money be locked into your car loan?
If your fixed rate car loan offers the flexibility to make extra repayments and get ahead on your loan, it’s often worth checking if it also includes a Redraw Facility. This extra feature will allow you to withdraw the extra repayments you’ve made on your car loan, subject to your lender’s terms and conditions.
The added flexibility offered by a redraw facility can be valuable if you’re worried about tying up your spare cash in your car loan. Instead, you’d be able to make extra repayments with confidence, knowing that the option is available to withdraw that extra cash to cover surprise expenses, just in case.
Will you need a deposit?
Paying a full security deposit on a car loan can help to reduce risk for a lender, which can in turn help you enjoy a lower interest rate on your car loan. But what if you haven’t saved enough money to cover a full deposit on the car you want?
Some lenders offer high Loan to Value Ratio (LVR) car loans, where you pay a smaller deposit up front and borrow a greater percentage of the car’s total value. Some lenders also have 100% loans available, where you borrow the full value of the car and don’t pay a deposit at all. While these loans mean you won’t have to save up for a deposit, they may end up costing you more from month to month, as you’re more likely to be charged a higher interest rate to make up for the increased lender risk.
Check your car’s finance
If you’re looking at reliable fixed rate car loans to help you avoid nasty surprises, then if the car you’re buying has been owned before, it’s usually worth organising a financial history report from the Personal Property Securities Register (PPSR), formerly known as a REVS check. This report will inform you if the car comes with a financial encumbrance, AKA money still owing on it from a previous owner.
It’s possible to organise a PPSR check for yourself, though you may be able to save a little time and effort by getting your lender to look after it for you, though some lenders will charge an extra fee for this service.
Compare fixed rate car loans
Are you ready to find a car loan that suits your lifestyle? Compare car loans with fixed interest rates right here at RateCity, and you can enjoy consistent repayments from month to month.
By selecting an affordable car loan, you’ll be the proud owner of a shiny new (or used) set of wheels before you know it!