Low Rate Car Loan

The decision to buy a car be it new or used is big one as cars don’t come cheap, consequently the majority of Australian’s buy our cars with the help of car loans, and to keep the costs down, a popular choice are low rate car loans which are designed to keep the interest charges on the loan as low as possible.

Each of the car loans featured in the table below are considered low rate car loans, which is slightly confusing as the rates on offer range from around 8% p.a. up to 15% p.a. which is a large spread. The guide to low rate car loans below the table below is designed to explain the reasons for this 7% point range and help you understand which of these low rate car loans will make the purchase of your car a rewarding experience with the selection of the best low rate car loan for your situation.

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  • Borrow between $10,000 and $100,000 - for a new or used car, which is used as security for the loan (conditions apply)
  • Low fixed interest rate - at 8.49% p.a. protecting you against changing interest rates with fixed minimum payments that won't change for the life of the loan
  • Choose the frequency of your repayments to suit when you get paid - weekly, fortnightly or monthly 
  • Terms of between 1 and 7 years

  • Borrow between $10,000 and $100,000 - for a new or used car, which is used as security for the loan (conditions apply)
  • Low fixed interest rate - at 8.49% p.a. protecting you against changing interest rates with fixed minimum payments that won't change for the life of the loan
  • Choose the frequency of your repayments to suit when you get paid - weekly, fortnightly or monthly 
  • Terms of between 1 and 7 years

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Selecting the Best Low Rate Car Loan

The rate offered by lenders on car loan is influenced by a number of factors, some which we can influence and others which are set in stone, here we consider these factors and offers some tips on how to get the best low rate car loan.


1. Secured Car Loan vs. Unsecured Loan

As the car you are purchasing using the loan will be acting as security for the money you are borrowing these secured loans generally offer lower rates than unsecured car loans where no security is required. An important point to remember with a secured loan is that if you do default on the loan the lender has the right to repossess the car to recover the outstanding loan debt.


2. Fixed rate vs. Variable rate

The large spread of interest rates offered on car loans is partially caused by the different rates of interest offered on Fixed and Variable rate car loans, with variable rate loans generally offering lower rates than fixed rate loans. 

Variable rate car loans are popular with car buyers who are looking for a low interest rate in conjunction with some flexibility around how they are able to repay the car loan. Variable rate car loans are available for the purchase of both new and used vehicles, and generally offer the option of a secured or unsecured loan.

With a variable rate car loan the interest rate on the loan may fluctuate across the term of your car loan, up or down, at the discretion of the lender, so your repayments may change as and when the lender chooses to increases or decreases the interest rate on your car loan.

Fixed rate car loans are preferred by borrowers who want to know exactly what their repayments will be across the full term of the car loan, and wish to avoid any exposure to interest rate changes, that may occur across their loan term. Unlike a variable rate car loan, which may be changed at any time by the lender, to keep in line with changing economic conditions, with a fixed rate car loan you to agree a rate with your lender at the start of the loan which will be fixed, and so remain the same for the full term of your loan.

An important consideration with fixed rate car loan is that if interest rates do fall during the term of your loan, any effect of these rate reductions will not be reflected in your loans interest rate, which will remain at the rate that it was fixed at the start of the loan. On the flip side if rates rise, these rate changes would equally not impact your car loan rate.

Tip - With a variable rate car loan make sure your lender includes the facility to make extra repayments at no cost. You may well feel that you won't ever be in a position to make any extra repayments, but circumstances do change and thier is no cost to having this facility in place, which could end up saving you significant dollars in interest charges.


3. Credit Rating

Some lenders use the credit rating as a parameter which influences the rate they offer you on the car loan, much in the same way as insurance providers where if you have the profile of a low risk driver you pay a lower insurance premium, and vice versa, rather than everyone paying the same amount.

When the lenders are setting the rate on your car loan they are seeking to balance any risk of you defaulting on the loan with the profit income they stand to acquire over the term of the loan assuming you don’t default. The end result is that applicants with excellent credit ratings maybe offered the lower rates, with no so good credit rating paying a couple of extra % to reflect there greater risk.

Tip - Get a copy of your credit report before making any car loan applications to ensure it’s in the best possible shape. If it does contain some blemishes work on fixing these before making any loan applications.


4. Employment Status

Lenders are looking for signs of consistency and stability, so if you have been working for the same company for a number of years this will help in your pursuit of the lowest possible rate for your car loan. If you career path features a high rate of switching jobs, this may potentially harm not only your ability to negotiate a low rate but also your ability to be accepted for a car loan.

Tip - If you have moved jobs frequently provide a written statement to explain why this has occurred, so for example you may simply have been offered better opportunities which you could validate by showing your wage sips which may show salary increases gained from your job switching.


5. Provide a deposit as part of the car purchase

Many lenders will lend 100% of the price of the car you’re seeking to purchase, however, if you provide a cash deposit or trade in your old car as part of the purchase, you are offering equity in your new car. The net result of this deposit, be it cash or a trade in, is that you will be borrowing less money, and through the equity, demonstrating you are a lower risk borrower.

Tip - Aim to save at least 10% deposit for your car purchase so you have some leverage to negotiate a lower rate or discounted fees.


6. Negotiate a lower rate

The car loan market is very competitive with an array of lenders vying for your business, which creates an opportunity to negotiate a better deal on your car loan. Prior to commencing any negotiation make sure you know what rates and fees are available from various lenders and use this information as leverage to secure better terms in terms of a lower rate or reduced fees.

Tip - If you are purchasing a new car your negotiation position should be a little stronger as lenders see new car purchases on secured loans as representing less risk and so should be more open to a lower rate.


7. Make sure the car you are seeking to purchase is eligible for a car loan

Lenders have strict criteria on the age of cars they are willing to provide loans for, these criteria vary by lender though on average the car you are purchasing cannot be older than 10 years at the end of your preferred loan term. Older cars, up to 12 years at the end of the loan term are available but will generally feature higher rates than those offered on cars that are not as old.

Tip - Check the car age of criteria of lenders before you start looking for your car as this will provide an indication of which vehicles you will be able to get a cra loan for.


Low Rate Car Loan Fees


Aside from the low rate you should also be looking for low fees, as a loan with a low rate and high fees would see the high fees canceling out the cost savings delivered by the low interest rate. The fees applied to car loans vary by lender, but will generally include the following:

  • Application Fee - Sometimes referred to as the establishment fee this cost is charged to cover the lenders administration costs incurred as they set up your car loan. It tends to be in the range of $150 -$300, and is one of the fees that you should be looking to negotiate down with your lender.
  • Monthly Service fee - This is charged by the lender to cover their cost of maintaining the loan over the course of the loan. The charge is usually around $10 - $15 per month, which does not sound too much until you calculate the fee over the full term of the loan, so for example for a 4 year car loan with a monthly fee of $10, would equate to total fees of $480. This is definitely a fee you should be looking to negotiate a discount on.
  • Early Repayment Penalty - If you repay your loan in full prior to the end of the loan contract you maybe charged a fee, this is charged by the lender to recoup the loss of interest charges incurred by your decision to payout the loan early.
  • Extra Repayment fee - Car Loans which allow you to make extra repayments above the contracted repayment amount may charge you a fee each time you make an extra repayment.
  • Late Payment Fee - If you miss your repayment it’s common for the lender to add a fee to your loan, this generally is in the range of $10 - $15 and is generally non negotiable.

Frequently Asked Questions

What are the differences between an unsecured & secured car loan?

An unsecured car loan allows you to borrow a sum of money to purchase a vehicle without attaching any assets to the loan. A secured car loan can be used to purchase a car which is then used as security for your loan. Attaching an asset as security for your car loan is viewed as less of a risk by your lender. Less risk presents the opportunity of obtaining a lower interest rate and can also make obtaining your loan approval a little easier. 

What is an unsecured low rate car loan?

An unsecured car loan does not require an asset to be attached as security for the car loan. However, your lender could perceive the car loan to be of a higher risk which may be reflected in the interest rate the offer you on the loan. Unsecured Car Loans include the option of a fixed or variable rate which will allow more flexibility to pay out your car loan.

How do I assess the merits of each Low Rate Car Loan?

Ask these 7 questions to establish your Low Rate Car Loan shortlist:

1. Is the interest rate on the car loan fixed or variable?

A fixed interest rate means the repayments stay the same for the term of your loan. It makes budgeting easier as you will always know what your repayments will be. A loan with a variable interest rate may vary which means your repayments will also change.

2. What is the term of the loan?

Some low rate car loans are only availabe over short terms between 2 to 3 years. These short terms will result in relatively high monthly repayments, so it is important to compare them with longer terms which will have lower repayments and may suit your monthly budget better.

3. What is the interest rate offered on the car loan?

Many car buyers focus on the monthly repayment amounts as they can then work out if they can afford the loan given their monthky income and expenses. It is very important to know what the interest rate is on the loan to make sure your loan isn't being structured by the lender,  around what you can afford rather than a competitive interest rate. To fully understand the total cost on your loan you should also ask what the comparison rate on the car loan is.

4. How much is the application fee?

An application fee is charged to cover the lenders costs of setting up the loan. These fees can vary in cost significantly, depending on which loan you choose.

5. How much are the monthly account fees?

The majority of car loans will incur a monthly fee to cover the lender administration costs. This fee differs considerably depending on the loan and lender and can be as much as $10 - $15 per month. This cost can really add up over the term of the loan. A monthly fee of $10 over 5 years would cost $600.

6. Can I make extra payments without financial penalty?

You should always ask if you can make additional repayments on your car loan without being charged a fee. Some car loans attract a fee if you want to make additional payments.

7. Will I need to pay an Early Termination Fee if I pay my car loan out early?

With the excitement of a getting a new car it can be easy to forget about the early termination or end of loan fees when you're signing your loan contract. Be sure to check your terms and conditions as each lender will have varying penalties for early termination of a car loan contract.

What is a secured low rate car loan?

A secured car loan uses the car you intend to purchase as collateral (security) for the loan. This means, that if you fail to pay off your car loan, the car can be sold by the lender to pay off your remaining car loan amount. A secured car loan typically has a fixed rate which means you have extra peace of mind, knowing that your repayment amounts and interest rate will not fluctuate over the term of your loan.

Can I apply for a car loan if I am self-employed?

Yes, there are car loans available for the self-employed. Plus you may be able to claim part of the car’s costs including loan interest as a tax deduction.

How does pre-approval of a car loan work?

Pre-approval of your car loan means having your car loan approved before you find the car you’d like to buy. This means you can shop around for your dream car with peace of mind knowing how much you can afford to spend. To calculate waht you can afford to borrow to fund your car purchase check out our Car Loan Repayment Calculator.

Once you find the car you’d like to purchase, your lender will arrange for the funds to be drawn and payment to be made to the dealer or private owner of the car.