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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 to find a low-interest car loan
Whether you’re looking for a personal loan or a home loan, it’s usually worth looking for one with a low interest rate, so you can pay less from month to month and over the lifetime of the loan.
Car loans are no different, and 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.
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.
What is a secured 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. Having a stable income and a good credit history can be a big help, but so is opting for a secured car loan.
In this arrangement, the balance you borrow is guaranteed against the value of the car you’re buying. Even if a borrower doesn’t pay back a lender, the lender can still make up this loss by repossessing and selling the borrower’s car. This extra financial security for lenders often translates into lower interest rates for borrowers.
What is an unsecured car loan?
That said, qualifying for a secured car loan isn’t always easy, as lenders want to be confident that the car’s value will cover the financial losses of a potential default. Thus, secured car loans may not be available for certain car models, or cars over a certain age, depending on the lender.
If the car you’re looking at doesn’t qualify for a secured car loan, or if you’d prefer not to risk losing your car if repaying your car loan becomes a problem, you could instead opt for an unsecured car loan, which will likely have a higher interest rate.
How do I find cheap petrol?
Want to find out real-time petrol prices near your home and work? You can use apps like FuelMap, MotorMouth and PetrolSpy. If you live in Sydney, Melbourne, Brisbane, Perth or Adelaide, the Australian Competition & Consumer Commission website will tell you whether now is a good time to buy, based on your city’s petrol cycle. Alternatively, if you want to see how prices have trended over the past few months or years, use the Australian Automobile Association website.
What is a variable car loan? What is a fixed car loan?
Once you’ve identified your preferred low-interest car loan, the next step is to make sure you can afford it over the life of the loan. Don’t forget that variable car loans can change at any time – the interest rate could go down, but it might also rise.
However, if you choose a low-interest car loan with a fixed interest rate, the rate will remain unchanged during the fixed-rate period. So even if variable rates go up, your fixed-rate car loan will maintain the same low interest rate, with every repayment bringing you one step closer to owning your car outright.
If you believe that interest rates are likely to fall, you might be better off going for a variable car loan after all. But just make sure that you have financial buffers in place so that you can keep paying the car loan if – contrary to predictions – your rate actually increases.
How to save money on your 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 payments on your car loan.
By getting ahead in your car loan repayments, you’ll be bringing yourself closer to getting it fully paid off and making an early exit from the loan, which should reduce the total amount of interest you’ll need to pay over the lifetime of your loan, saving you money.
However, this isn’t a valid option for every low-interest car loan. That’s because some lenders charge fees for making additional repayments or exiting a loan early, to compensate for the interest payments they’d be missing out on. This is something to check before you take out the loan.
Fixed-rate car loans tend to carry more restrictions, often locking borrowers into tight repayment plans. Variable rate car loans tend to have more flexible repayment arrangements, though some lenders do still charge these fees. Again, make sure you’re familiar with the car loan’s terms and conditions before signing on.
What is a car loan redraw facility?
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 exiting your 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 in your loan without locking up your spare cash in your loan and losing access to it altogether.
Please note, though, 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.
Who offers car loans?
- Big four banks – ANZ, Commonwealth Bank, NAB and Westpac
- Mid-size banks – Suncorp Bank, Bankwest, Bank of Queensland, St George and others
- Mutual banks – IMB Bank, Beyond Bank, Bank Australia, Greater Bank and others
- Credit unions – CUA, BCU, My Credit Union, Community First Credit Union and others
- Non-bank lenders – 360 Finance, loans.com.au, DirectMoney, PrimeEdge Car Loans and others
Do you need a deposit for a low-interest car loan?
If you’re hoping to get a low interest rate on your car loan, you’re more than likely going to need to pay the full deposit required by your lender, to better ensure your loan’s security and reduce the lender’s financial risk.
While some lenders offer loans that require only smaller deposits or even no deposits, these loans represent higher financial risks to their lenders, which means higher interest rates. So if you have your heart set on a low-interest car loan, it’s usually worth making sure you have some savings available for a deposit.
How to check a car’s financial history
If you’re buying a car that’s been owned before, even if it’s young enough to count as ‘new’ for the purpose of taking out a car loan, it’s usually worth applying for a report on its financial history from the Personal Property Securities Register (PPSR), formerly known as a REVS check.
This will let you know if the car still has money owing on it from a previous owner (also known as a financial encumbrance). While you can organise one of these reports yourself, your lender might be willing to do this for you during the loan application process – although you might have to pay a fee.
How to compare low-interest car loans
At RateCity, you can find a wide range of car loans available from a variety of lenders, and organise your options 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.
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.
Some companies will advertise no credit check car loans, however under the Australian National Consumer Credit Protection act, credit checks are required by all responsible lenders, so such lenders are likely to have high interest rates. Depending on your income and credit history, you may qualify for a low interest StepUP loan from Good Shepherd Microfinance.
You might be better off finding a specialist lender who will look at your credit history and income, who will decide whether or not you are able to responsibility pay back the loan. Alternatively, you could contact a car finance broker.
You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.
Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.
That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.
One thing to bear in mind is that lenders who offer no credit check car loans are likely to charge higher interest rates and higher fees than on car loans that include a credit check. Also, lenders who no credit check car loans might expect you to pay a higher deposit. You might also be expected to provide security.
Lenders regard no credit check car loans as riskier than other car loans, which is why it’s a niche product that often features special conditions.
Even if you have bad credit or no credit history there are loans that are available to you through specialised lenders. Some lenders in Australia advertise car loan offers without running credit checks, however, the Australian National Consumer Credit Protection act requires lenders to loan money responsibly, so credit checks are normally required by all responsible lenders.
Laine Gordon is the Head of Public Relations at RateCity. With a background in journalism, Laine brings over a decade of experience in personal finance to the team. She is passionate about helping people get out of debt, save money, and make better decisions about their own finances.