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How do I get a low interest car loan?

To get the lowest possible interest rate on your car loan, you’ll need to prove that you’re a relatively safe risk for the lender.

You may be able to boost a lender’s confidence if you:

  • Have a stable income
  • Maintain a good credit history
  • Choose a secured car loan

Keep in mind that the car loan with the lowest rate may not be the best car loan to suit your financial situation. 

What is a low car loan interest rate?

A low interest car loan is a car finance product that offers borrowers a lower than average interest rate. Interest rates are what lenders charge their customers for borrowing money. The amount of interest charged on loan products is calculated as a percentage of the amount borrowed.

Taking out a low interest car loan will typically mean paying less in interest charges on your loan amount over the life of the loan. At the end of August 2021, the average Australian car loan interest rate on RateCity's database was just under 8.5%.

Keep in mind, however, that there will generally be fees payable in addition to interest charges, so it’s important to factor these into your calculations. Consider the product’s comparison rate to get a more accurate depiction of the total cost of the loan.

Remember that the interest rate advertised by a lender may not be the interest rate you’ll pay on your car loan. The rate charged by a lender may vary depending on a range of factors, such as your credit score, your income, and other elements of the lending criteria.

Additionally, the type of car loan you choose could affect the interest you pay:

  • Secured car loans tend to have lower interest rates than unsecured car loans, as they are guaranteed by the value of the vehicle.
  • Unsecured car loans tend to have higher interest rates than secured car loans, though they may have fewer restrictions on the type or age of vehicle you can buy. 
  • Fixed rate car loans will have you paying the same fixed interest rate for the duration of your loan term, for simpler budgeting, though they may offer less flexibility.
  • Variable rate car loans may have their interest rate increase or decrease during your loan term, which could affect your monthly repayments.

Why aren't all car loans low interest?

The interest rate on a car loan, like with personal loans and other finance products, will typically vary from one lender to the next. Additionally, the interest rate available to one borrower may not be offered to another.

There are a number of complex reasons why this can be the case, but here are just a couple of factors that can contribute:

  • Varying overheads: Some online-only lenders have fewer overheads, such as rent, and are able to use the money saved to lower their interest rates.
  • Borrower’s credit rating:A borrower with an excellent credit score will often be able to access a more competitive rate than a borrower with a less desirable credit score, as they are seen to be less of a risk. This means that low interest car loans are often reserved for borrowers with excellent credit.
  • Differing fee structures: Some lenders may offer lower interest rates, but have higher fees, while other lenders may charge higher interest rates, but have lower fees. Car loan fees may include upfront or establishment fees, as well as ongoing fees. On the other hand, some lenders charge no fees at all on their car loans. 

How do I reduce the interest on my car loan?

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, it might be worth considering making additional repayments on your car loan.

By getting ahead in your car loan repayments, you’ll be bringing yourself closer to getting your loan amount fully paid off and making an early exit from the loan, which should 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 payment fees for making additional repayments, or early repayment fees for paying off a car loan ahead of schedule, to compensate 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. Variable rate car loans tend to have more flexible repayment options, though some lenders do still charge these fees. 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 onto 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.

How much will a low interest car loan cost you?

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Can anyone get a low rate car loan?

If you’re on the hunt for a low rate on your car loan, it’s worth considering how your credit history and credit score may play a role. 

When a vehicle finance provider assesses your loan application, they will perform a hard credit inquiry into your credit history to calculate your creditworthiness. Put simply, they are examining the level of risk you pose as a borrower and the chance that you may default on your loan.

The higher your credit score, the less likely you are to default on your loan. In turn, the higher your credit score, the more competitive the interest rate offered to you may be. There are, of course, other eligibility criteria you will need to meet as a borrower to qualify for a low interest rate. But by having an excellent credit score, you generally will increase your chances of qualifying for a lender’s lower rates.  

Struggling with a below average or just average credit score? Or do you have bad credit? There are a few ways you may be able to boost your credit score today. 

Which banks offer the lowest rate car loans?

A variety of Australian banks and non-bank lenders offer low rate car loans, including:

Low interest car loans from a wealth of lenders

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How do I find a low interest car loan?

It’s usually worth looking for a car loan with a low interest rate, so you can pay less from month to month and over the lifetime of the loan.

While it's useful to compare the features of any car loan, it’s also worth comparing the other features offered by a low-interest car loan, to make sure you’re getting a deal that’s right for you. That’s because when you also look at a low-interest car loan’s fees and features, you might find that the cheapest loan isn’t always the best.

Comparison tables

At RateCity, you can find a wide range of car loans available from a variety of lenders, and organise your options in our tables to find the car loans offering the lowest advertised interest rates and comparison rates.

Remember, though, that a low interest rate shouldn’t be all that you look for on your car loan – take a closer look at the features and benefits offered by different lenders to work out which car loan will provide you with the most value for your financial situation.


RateCity’s Car Loan Calculators allow you to enter the details of your preferred car loan to work out the repayments, so you can better prepare your household budget. You can then compare car loan options that may fit your results, for a quick and simple way to search for a car loan.

Real Time Ratings™

RateCity’s Real Time Ratings™ combine the cost and flexibility of a loan into a single star rating. These ratings are updated every day to help provide an accurate indication of the overall value offered by different financial products, including car loans. You can compare some of the top-rated car loans in a variety of categories on our Car Loan Leaderboards, and search for the gold badges of RateCity Award winners.

What is a car loan comparison rate?

One important point to remember when searching for low-interest car loans is that the advertised interest rate might be different from the ‘real’ rate you pay. That’s because car loans can become significantly more expensive once you include the cost of fees.

As a result, you should also consider the ‘comparison rate’, which combines the advertised interest rate with any associated fees. Please note, though, that the comparison rate will be calculated on a car loan of $30,000 over five years – so it might be slightly inaccurate if your loan is different.

Once you do that, you might discover that some low-interest car loans aren’t as cheap as they initially seem. You might also find that some car loans with a higher advertised rate might work out costing you less over the life of the loan.

Remember that a car loan’s comparison rate only summarises its standard fees and charges, and may leave out other costs associated with a particular loan. Also, the comparison rate doesn’t account for the extra features and benefits that could influence your decision, so be sure to do a little extra research settling on a low interest car loan.

Where can I look for a low rate car loan?

Car loan interest rates are always fluctuating, but there are a range of car loan lenders offering interest rates below 10 per cent. Whether or not a borrower will qualify for the lowest rates on offer will depend on a range of factors around how they meet the lender’s eligibility criteria. 

If you’re looking for a competitive interest rate, you may want to consider:

  • Competitor lenders: Online lenders and smaller competitors to the big four banks may offer more competitive interest rates than the leading banks. This is because traditional brick-and-mortar lenders typically have higher overheads than smaller lenders, who can then pass on these savings to their customers in the form of lower rates and fewer fees.
  • New vehicles: You may find that a lender is likely to offer a lower interest rate for a new car loan than a used car loan. This is because there is less risk that a new vehicle will break down during the car loan term than a used vehicle.
  • Secured car loans: By securing your loan with the value of the car you’re buying, there is less risk of the lender losing money if you were to default on your repayments. This extra confidence means a lender is more likely to offer a lower car loan interest rate.
  • Refinancing: If your personal financial situation has changed, refinancing your car loan may also be an option to consider. This involves switching from one car loan to another, often one with a lower interest rate. Keep in mind that if your refinance extends your loan term, you may end up paying more interest on your car in total.

Remember that your car loan won't be the only ongoing vehicle cost you'll need to budget for. There's also petrol, car servicing, car registration and car insurance to consider.

What is an interest rate?

The interest rate is the price you have to pay for borrowing money. The interest rate is expressed as an annual percentage of however much of the loan remains to be paid. For example, if you took out a $10,000 car loan with an interest rate of 8.75 per cent, you would be charged 8.75 per cent of $10,000, or $875 of interest per year. But if you then reduced the outstanding loan to $9,000, your annual interest bill would be 8.75 per cent of $9,000, or $787.50.

What is a variable-rate loan?

A variable-rate loan is one where the lender can change the interest rate whenever it wants. For example, if you sign up for a variable-rate loan at 8.75 per cent, the lender might change the interest rate to 8.90 per cent the month after and then 8.65 per cent the month after that. By contrast, if you take out a five-year fixed-rate loan at 8.75 per cent, the lender is obliged to leave your interest rate at 8.75 per cent for at least five years.

What is a comparison rate?

The comparison rate is known as the ‘real’ interest rate you have to pay – unlike the advertised interest rate, which is often an artificially low number. That’s because the comparison rate includes both the advertised rate and the associated fees. According to the industry standard, comparison rate calculations are made on the assumption that the car loan will be for $30,000 over five years.

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.

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.

This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.