A car loan is a type of personal loan that can be used to purchase a new or used car. Car loans are typically secured by the vehicle you are purchasing, meaning the lender can possess and sell your car in the event that you don’t make the repayments. Because of this extra level of protection for the lender, secured loans, including most car loans, typically have lower interest rates than unsecured loans.
How can I get a low-interest car loan?
There are a few different ways you may be able to get a lower interest rate on a car loan:
- Have 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. According to Beyond Bank, this is partly because a newer car has a better resale value than a used car. Of course, it can be important to weigh up whether buying a new car instead of a used one is worth it for you, based on factors such as whether the potential savings on interest and maintenance costs over time outweigh the higher purchase price you are likely to pay.
- Consider a loan guarantor. A loan guarantor is someone who agrees to make your car loan repayments if you can’t. According to ASIC’s Moneysmart, some lenders will offer a lower interest rate if you have a loan guarantor. But before you enter into 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.
Who offers low-interest car loans?
Here’s a snapshot of the lowest-rate car loans on Canstar’s database at the time of writing.
You can compare a wider range of car loans using Canstar’s comparison tables, where you can filter the results by the lowest advertised rate or comparison rate. You can also tailor the results according to your preferred loan amount, loan duration and the age of the car you are purchasing. Please note that the results do not take into account your credit history and other factors specific to your loan application.
Compare New Car Loans with Canstar
The table below displays some of our referral partners’ new car loan products on Canstar’s database for a three-year loan of $20,000 in NSW. The products are sorted by comparison rate (lowest to highest), then by provider name (alphabetically). Use Canstar’s Car Loans comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals. Read the Comparison Rate Warning.
Compare Used Car Loans with Canstar
The table below displays some of our referral partners’ used car loan products on Canstar’s database for a three-year loan of $20,000 in NSW. The products are sorted by comparison rate (lowest to highest), then by provider name (alphabetically). Use Canstar’s Car Loans comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals. Read the Comparison Rate Warning.
How can I compare low-interest car loans?
When shopping around for a car loan, a low interest rate is just one thing to look for. Other factors to compare and consider 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.
- What is the comparison rate? Comparison rates take into account the interest rate on a loan, as well as most upfront and ongoing fees and charges. 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 specified 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.
You can also look at Canstar’s expert Personal and Car Loan Star Ratings, which compare loans based on price and features.
How much can I borrow with a low-interest car loan?
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, according to Westpac most banks offer secured car loans for between $10,000 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).
Can I get a low-interest car loan if I have bad credit?
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 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 interest 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 can also check your credit score for free with Canstar.
Can I get a 0% interest car loan?
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.
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