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How much does a car loan cost?
If you want to buy a new or used car, a car loan can help you finance it, but it’s important to make sure you can afford the repayments and other associated car loan fees. So you may be wondering—how much does a car loan cost?
17 Jan 2025
If you want to buy a new or used car, a car loan can help you finance it, but it’s important to make sure you can afford the repayments and other associated car loan fees. So you may be wondering—how much does a car loan cost?
What is a car loan?
A car loan is a type of personal loan that is taken out specifically to help finance the purchase of a new or used car. With a car loan, you borrow a specified amount of money (known as the principal) 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 car loan, you need to provide an asset as security or collateral for the loan, which is typically the car you are purchasing. If you don’t make your repayments on time or cannot repay the loan, the lender can sell your asset to recover the debt owed. Most lenders also offer unsecured car loans, where no asset is provided as a security. However, they often come with higher interest rates and are generally only 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 (expressed as a per annum (p.a.) %) and the fees charged. It can also be affected if you chose to contribute a deposit or trade in a vehicle, as this would bring down the amount of money you would need to borrow and reduce the overall interest you would pay.
You can use Canstar’s Car Loan Repayment Calculator to estimate your 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 and only provides an estimate. Fees can add to the overall cost of your car loan. Some common car loan fees can include establishment, ongoing service, missed payment, additional repayment and early repayment fees.
Additionally, if you take out a variable rate car loan, your lender can raise or lower the interest rate throughout the life of the loan, often due to economic factors like the cash rate. This can influence your repayment amount, the amount you pay in interest and the overall cost of the loan. This differs from a fixed rate loan, where the interest rate will stay the same for the fixed loan period.
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How is car loan interest calculated?
When repaying your car loan, a portion of your repayment will go towards paying interest on your loaned amount. Lenders generally calculate car loan interest daily, based on the remaining loan balance on that specific day. They will then charge interest monthly. Due to the way interest is calculated and charged, you may be able to pay less in interest overall if you opt for fortnightly or weekly repayments over monthly ones.
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 5.69% to 29.99% across Canstar’s database. The average interest rate for a secured new car loan is currently 9.19%, while the average interest rate for a secured used car loan is 9.73%. These calculations are based on secured car loans available for a loan amount of $40,000 and $20,000 respectively with a loan term of five years, with average rates based on the median rate where applicable at the time of writing.
In addition to checking out a car loan’s interest rate, it’s also worth looking at its comparison rate. The comparison rate takes into account the interest rate, as well as most upfront and ongoing fees and charges. Comparison rates aim to give you a better estimate of the total cost of the loan each year.
You should also 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. If you have an excellent credit rating, you may be offered a better interest rate, which could help you save on the amount of interest you would have to pay. You can check your credit score for free with Canstar and via the Canstar App.
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 establishment fee. The average establishment fee is $282 for new secured car loans and $324 for used secured car loans. Only 20% of car loans charge some kind of ongoing fee. Because of this, we have not factored ongoing fees into our calculations. The average ongoing fee is about $107 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–$40,000 loan amount with a 9.33% interest rate and $282 establishment fee
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| Loan term | Monthly repayment |
Total cost |
|---|---|---|
| 3 years | $1,276 | $6,218 |
| 5 years | $834 | $10,322 |
Source: www.canstar.com.au – 13/01/2025. Based on secured, personal, new car loans on Canstar’s database available for a $40,000 loan amount and 5 year loan term. Where rate range applies the mid rate is used.
Cost of a used car loan, secured–$20,000 loan amount with a 9.67% interest rate and $324 establishment fee
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| Loan term | Monthly repayment |
Total cost |
|---|---|---|
| 3 years | $643 | $3,472 |
| 5 years | $422 | $5,644 |
Source: www.canstar.com.au – 13/01/2025. Based on secured, personal, used car loans on Canstar’s database available for a $20,000 loan amount and 5 year loan term. Where rate range applies the mid rate is used.
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, fuel and car servicing.
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24hr approval available
24hr approval available
Cover image source: sommart sombutwanitkul/Shutterstock.com
This article was reviewed by our Finance Editor Jessica Pridmore before it was updated, as part of our fact-checking process.
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