Low-interest car loans

A car loan with a low interest rate is typically a type of secured personal loan. You may also find the interest rates for a new vehicle lower than a used vehicle. One of the major reasons for this is because a loan secured by a new car theoretically will have a better resale value than a used car, according to Beyond Bank.

There are a few different ways you may be able to get a low-interest car loan. Here are some factors that could help you secure a low-interest car loan:

• A good credit score. Some car loan providers have ‘risk-based’ pricing where the interest you are offered is based on how risky the lender thinks you are. People who have a good credit history will typically be offered lower interest rates.
• Consider purchasing a new car. On average, new car loans have lower interest rates than used car loans. One of the major reasons for this is because a loan secured by a new car theoretically will have a better resale value compared to a used car that may not have a complete use history. Of course, it is important to weigh up whether buying a new car instead of a used one is worth it for you.
• Consider a loan guarantor. A loan guarantor is someone who agrees to make your car loan repayments if you can’t. This lowers your risk as a borrower, which may mean lenders could potentially offer you more competitive interest rates. But before you enter this kind of arrangement, be aware of the risks involved.
• Shop around. Another way to get a low-interest car loan is to compare your options and make sure you are getting the best deal for you. You can also ask lenders directly to see if they can offer you a better rate than their official interest rate

The amount you can borrow with a car loan will depend on the provider and the type of loan you choose, as well as your individual circumstances.

Although each provider will be different, Canstar’s Research Team found most banks offer secured car loans for between $5,000 and $100,000.

To determine how much you can borrow, lenders will look at your income, expenses, personal circumstances (including if you have any dependents) and any other financial commitments you have (such as other loans or credit cards). Your credit score will also affect how much you’re able to borrow. If you’re unsure about your credit score, you can use Canstar’s free credit score checker to see your credit score and summary.

Check your credit score

If you have a bad credit history, you may find it more difficult to get approved for a car loan compared to someone with a good credit score. On top of this, even if you are approved for a loan, it may be harder to get a low interest rate, as the lender may see you as a risky borrower.

If you are hoping to get a low rate car loan, you might be better off waiting until you have improved your credit history if you can. There are a number of steps you can take to help improve your credit score, such as making sure you pay your bills and any existing debts on time. If you need help managing your debts, you might like to contact a financial counsellor. You can speak to one for free by calling the National Debt Helpline on 1800 007 007.

You’ll likely find various competitively low rate car loans across a number of banks and lending institutions in Australia. You can use the comparison table at the top of the page to compare some of the lowest car loan interest rates on Canstar’s database.

There are a variety of factors to consider when comparing car loans outside of low interest rates. Other factors to consider when comparing include:

• Is the interest rate fixed or variable? With a fixed rate car loan, your interest rate and repayments will be the same throughout the loan. With a variable rate car loan, the interest rate can increase or decrease during the loan, and your repayments can change as a result. Whether to go with a fixed or variable rate will depend on the current market and your own circumstances.
• What is the comparison rate? Comparison rates take into account the interest rate as well as most upfront and ongoing fees and charges that come with the loan. They are designed to give you a closer estimate of the total cost of the loan per year.
• What are the fees? Car loans can come with a range of fees, including an establishment fee, monthly service fees, missed payment fees, extra payment fees and early repayment fees.
• What is the loan term? By taking out a loan with a longer term (the amount of time you have to repay the loan), you will usually be able to make lower repayments. However, it also typically means you will pay more interest over the duration of the loan.
• What are the conditions of the loan? The lender may require the car you are buying to be brand new or under a specific age to be eligible for the loan. Check with the lender for any car loan you’re considering to confirm whether any other eligibility criteria apply.
• What features are available? For example, can you make additional repayments and are there any fees for doing so? Is there a redraw facility that allows you to access your extra repayments and are there any fees? Are you able to repay the loan early? Some lenders also offer a balloon payment option, where you pay a lump sum amount at the end of the loan. While this can lower your regular repayments, you’ll generally end up paying more in interest.

Some car dealers offer 0% interest car loans. It’s important to read the fine print and see if any additional costs apply.

For example, in some cases the provider may factor the cost of the interest into the overall price of the car. Make sure you compare the total price of the vehicle against the price you may pay if you got a loan through another provider.

Learn more: Interest-free car loans: the truth about 0% interest car finance