To find the right car loan for you, it’s important to shop around and compare your options based on factors like price and the features on offer.
How to find the best car loan for you
The car loan that ends up being the best for you will depend on your personal circumstances. Although a low interest rate is one factor to take into account, it’s worth considering other factors like fees (which can eat into some of the money you may save in interest) and features (which could add to the overall value of the loan). Plus, don’t forget to check your credit score for free, as it could influence your interest rate plus borrowing power. Here are some factors you can compare:
Interest rate
The interest rate is the rate of interest that you will pay on the loan per year. Loans can have a fixed interest rate or a variable interest rate. If the loan has a fixed interest rate, this means the rate and your repayments will stay the same. This can give you peace of mind and could help with budgeting. On the other hand, if the loan has a variable interest rate, the rate can go up or down at any time. This means your repayments can also vary and you could benefit from lower repayments or have to pay higher ones.
Comparison rate
It’s also worth comparing the loan’s comparison rate. Comparison rates take into account the interest rate as well as most upfront and ongoing fees, so they are meant to give you a better idea of the total cost of the loan per year.
Secured or unsecured
Car loans can be either secured or unsecured. Secured car loans require you to provide an asset (such as the car you are purchasing) as security or collateral for the loan. If you don’t make your repayments on time, the lender is able to repossess your asset and sell it. Unsecured car loans do not require an asset as security. Because they don’t have this added level of protection for the lender, the interest rates are usually higher.
Fees
Check what fees are charged and how much they are. Car loans can come with a range of fees, such as establishment fees, monthly service fees, missed payment fees, extra repayment fees and early repayment fees.
Features
Check what features are on offer and see whether you think they add to the overall value of the loan. For example, can you make additional repayments without paying a fee? This could help you get ahead on your loan and save on interest. Some lenders also offer access to a redraw facility, so you can access the additional repayments you’ve made if you need to.
Some lenders also offer ‘balloon payments’, where you pay a large lump-sum amount at the end of the loan. While this can lower your regular repayments, you should take care with this approach as it usually means you end up paying more interest overall.
Loan term
The loan term is the amount of time you have to repay the loan. By choosing a longer loan term, you will usually be able to get lower repayments. However, you’ll also be spreading them out over a longer period of time, so you’ll likely be paying more interest in total.
See some of the best car loans on Canstar’s database
If you’re looking for the best car loan for your circumstances, Canstar’s Star Ratings could be a good starting point. Each year, Canstar’s expert researchers analyse and rate car loans on our database. Car loans are assessed based on both their price and features. The top-performing loans are then given a 5-Star Rating. See which new and used car loans received a 5-Star Rating.
This content was reviewed by Sub Editor Jacqueline Belesky as part of our fact-checking process.
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