If one of the reasons you’re looking for a car loan with a low interest rate is to avoid paying a lender too much more on top of your car’s value, there are several options you could consider.
By making additional repayments and getting ahead on your car loan, you’ll be bringing yourself closer to getting your loan fully paid off ahead of schedule. Making an early exit from a loan can reduce the total interest you’ll be charged over the lifetime of your loan, saving you money.
However, this may not be a valid option for every low-interest car loan. Some lenders charge fees for making additional repayments or for paying off a car loan ahead of schedule, to help make up for the interest payments they’d be missing out on.
Fixed-rate loans tend to carry more restrictions, often locking borrowers into tight repayment plans, without the option for extra repayments. Variable rate car loans tend to have more flexible repayment options, though some lenders do still charge fees for making extra repayments. Make sure you’re familiar with the car loan’s terms and conditions before signing on.
If your low-interest car loan allows you to easily make extra repayments, there’s sometimes an added benefit beyond just bringing you closer to the end of the loan early. If your car loan also includes a ‘redraw facility’, you’ll be able to claim back (or redraw) the extra money you’ve paid into your car loan if required.
As well as adding extra flexibility to your car loan, a redraw facility can help you make those extra repayments with confidence – you’ll be able to get ahead on your loan without locking up your spare cash in a loan where it can’t be easily accessed.
Please note that redraw facilities often come with conditions attached. For example, you might have to pay a fee every time you redraw money. Also, there might be limits on how much you can withdraw within a certain time period.