How to get the best car loan in 2019

Getting a car loan can be very confusing. There are so many strange processes to go through; so many strange finance words to decipher.

So it’s not surprising that some people end up with a bad loan – one that might have a high interest rate or excessive fees or too little flexibility.

There’s no definitive ‘best’ car loan, because what’s best for one person might not be best for another. But if you want a loan that minimises your repayments, follow these five steps:

  • Shop around
  • Save a deposit
  • Secure the loan
  • Reduce your loan term
  • Choose your preferred interest type

1. Shop around

The most important thing to do if you want the best car loan is shop around.

Sadly, your long-term bank is highly unlikely to reward you for your loyalty. They generally save their special deals for new customers they’re trying to entice not old ones they expect to keep.

There are a few different ways to shop around. One is to call lots of different lenders – effective, but time-consuming. Another is to go straight to a car finance specialist like Broli, which allows you to immediately compare more than 20 lenders, including big banks and low-rate providers.

2. Save a deposit

As a general rule, the bigger your deposit, the more likely a lender is to offer you a lower interest rate, lower fees and better loan features.

Deposits are measured in percentage terms. So a $5,000 deposit on a $25,000 car purchase (equivalent to a 20 per cent deposit) would actually be ‘bigger’ than a $7,000 deposit on a $50,000 purchase (equivalent to 14 per cent).

Got a deposit? Click here to see if you qualify for a car loan.

3. Secure the loan

Just as lenders tend to reward borrowers for larger deposits, they also tend to give the best deals to those who provide security (or collateral) – which tends to be the car itself.

If you choose a secured car loan, you’ll probably get a lower rate and lower fees than if you take out an unsecured car loan.

Click here to compare secured and unsecured car loans.

4. Reduce your loan term

One way to reduce the overall cost of your loan is to shorten the loan term – assuming, of course, that you can meet the repayments.

A shorter loan term means higher monthly repayments and lower total repayments, while a longer loan term means lower monthly repayments and higher total repayments.

For example, here are two different repayment scenarios for a $20,000 loan with a 7.50 per cent interest rate:

Loan term Monthly repayments Total repayments
3 years $622 $22,396
5 years $401 $24,046

5. Choose your preferred interest type

Interest rates come in two flavours – variable and fixed. Some lenders only offer one flavour, while others allow you to choose your favourite.

If you choose a variable interest rate, the lender can change the rate at any point during the loan term. So the rate might go down – but it also might go up.

If you choose a fixed interest rate, it will never change. So the lender won’t be able to jack up your rate when everyone else’s variable rate rises – but it also means the lender won’t reduce your rate when variable rates fall.

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Learn more about 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.

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 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 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.

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 is a fixed-rate loan?

A fixed-rate loan is one where the interest rate remains constant for an agreed amount of time. For example, 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. By contrast, if you take out a variable-rate loan at 8.75 per cent, the lender can change the interest rate whenever it wants.

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.

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 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 a refinance?

A refinance is when you swap one car loan with another. For example, you might take out a car loan with Lender X because it is the best on the market at the time – but two years later, you might switch to Lender Y because you discover that it now has the best loan. Conditions and fees often apply when you refinance.

What is a balloon payment?

Some lenders will offer borrowers reduced monthly repayments in return for a one-off lump sum – or balloon payment – that the borrower has to pay at the end of the loan. Generally, the total repayments on a loan with a balloon structure will be higher than a loan without.

What is a car loan calculator?

A car loan calculator is an online tool that helps consumers understand how much they would have to repay under different scenarios. Consumers can create these different scenarios by entering different borrowing amounts, interest rates, loan terms and repayment schedules into the car loan calculator.

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 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.