How much does a car loan cost?

TAMIKA SEETO
Finance Journalist · 23 August 2021
If you want to buy a new or used car, a car loan can help you finance it. But before you drive away, it’s important to make sure that you can afford the repayments. Here’s a closer look at how much a car loan could cost you.

In this article:


What is a car loan?

A car loan is a type of personal loan that is taken out to help purchase a new or used car. With a car loan, you borrow a specific amount of money and must repay this (plus interest and fees) over an agreed amount of time (known as the loan term). You can usually make repayments weekly, fortnightly or monthly.

Many car loans are secured. With a secured loan, you need to provide an asset as security or collateral for the loan. This is usually the car you are purchasing with the loan. If you don’t make your repayments on time, the lender can repossess your car and sell it to recover the amount owed. Lenders can also offer unsecured loans, where no asset is provided as security. However, they often have higher interest rates and are commonly available for used cars.

How much does a car loan cost?

The cost of a car loan will largely depend on how much you borrow, how long the loan term is, the interest rate and the fees charged.

You can use Canstar’s Car Loan Repayment Calculator to estimate your car loan repayments based on the loan amount, interest rate, loan term and how frequently you will make your repayments (weekly, fortnightly or monthly).

Be aware that the calculator does not consider all fees and charges. Fees add to the overall cost of a car loan. Some common fees include establishment fees, ongoing service fees, missed payment fees, extra repayment fees and early repayment fees.

Additionally, if you take out a variable rate loan, the interest rate can go up or down over the course of the loan. This will influence your repayments and the overall cost of the loan. This is compared to a fixed rate loan, where the rate will stay the same for the fixed period.

What are the interest rates on car loans?

Interest rates on car loans can vary significantly so it’s important to shop around. At the time of writing, car loan interest rates range from 3.99% to 29.99% across Canstar’s database. The average interest rate for a secured new car loan is currently 6.72%, while the average interest rate for a secured used car loan is 7.29%. These calculations are based on secured car loans available for a loan amount of $20,000 with a loan term of five years, with average rates based on the median rate where applicable.

In addition to checking out a car loan’s interest rate, it’s also worth looking at it’s comparison rate. The comparison rate takes into account the interest rate, as well as most upfront and ongoing fees and charges. They aim to give you a better estimate of the total cost of the loan each year.

Plus, consider your credit score. Some car loan providers will offer you an interest rate in a range, based on whether your credit score is excellent, very good, average, below average or poor. You can get your free credit score with Canstar.

How much will a car loan cost over time?

We’ve calculated how much the monthly repayments would be for an average secured car loan. We have based this hypothetical example on the average interest rates for new and used cars.

We’ve also factored in the average fees charged. The majority of car loans on Canstar’s database charge an application fee. The average application fee is $236 for new secured car loans and $240 for used secured car loans. Only 20% of car loans charge some kind of ongoing fee. Because of this, we have not factored this into our calculations. The average ongoing fee is about $80 per year.

Lastly, we’ve considered two different loan terms to show you how this can impact the cost of a loan.

Cost of a new car loan, secured – $20,000 loan amount with a 6.72% interest rate and $236 application fee

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Term Monthly repayment Total cost
3 years $615 $2,375
5 years $393 $3,839

Cost of a used car loan, secured – $20,000 loan amount with a 7.29% interest rate and $240 application fee

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Term Monthly repayment Total cost
3 years $620 $2,567
5 years $399 $4,166

Source: www.canstar.com.au – 20/08/2021. Based on secured personal car loans available for a loan amount of $20,000 and loan term of 5 years. Average rates calculated based on the median rate where applicable. Repayment calculations assume principal and interest monthly repayments, with application fee paid upfront. Other fees may apply.

You can use Canstar’s Car Loan Repayment Calculator to estimate your car loan repayments based on other loan amounts, interest rates, loan terms and payment frequencies. Keep in mind that this does not consider all fees and charges.

The overall cost of buying a car will be more than just the loan in question. Remember to budget for other ongoing costs like your vehicle registration, car insurance, petrol and servicing.

Cover image source: everydayplus/Shutterstock.com


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