Car Loan Interest Rates in Australia

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How Can You Find the Best Car Loan Interest Rates in Australia?

Buying a car is one of the biggest purchases that people make in their life. The car buying process can be stressful, especially when you’re searching for affordable car finance rates and you don’t know where to look.

To help you save as much money as possible, learn how to find the best car loan interest rates in Australia.

Contents

    What are typical car loan rates in Australia?

    To make sure you’re finding the best deals possible, it helps to have a ballpark understanding of the average interest rates for most cars. In general, car loan rates in Australia go anywhere from 3.99% to 23%. You may be able to find low interest rates as a part of a dealership promotional offer. The very lowest car loan interest rates are usually reserved for green vehicles, like electric and hybrid vehicles.

    The average new car loan rate is around 6%, while the average used car loan rate is a little higher at around 7%.

    What affects car loan interest rates?

    Car loan interest rates are determined by the lender based on their own costs and policies, the vehicle being purchased, and the credit history of the buyer. To find the best car finance rates in Australia, there are the factors you have to consider.

    • Credit score

      Having a good credit history indicates to lenders that you are trustworthy, which generally leads to better interest rates.

    • Age of the vehicle

      Car interest rates tend to be lower for newer vehicles. A used car has a lower resale value, so the lender charges higher rates.

    • Loan term

      Getting a longer loan term may help you get a lower interest rate. However, you may end up paying more in interest overall.

    • Loan to value ratio

      A larger deposit means you’re loaning a smaller portion of the overall value of the car, which is optimal for lenders.

    Other important factors to keep in mind

    Loan security. Secured car loan interest rates are cheaper than unsecured personal loan rates because the car itself is collateral, which means the loan carries less risk for the lender.

    Credit history. Good credit history shows lenders that you are trustworthy, which leads to more favorable interest rates. Keeping your credit score high is important for saving money.

    Brokerage fees. If getting a low interest rate through a broker or a finance officer, there may be additional fees paid out to the middleman. These can add up to hundreds or thousands of dollars.

    Additional loan features. Certain extra fees and fines might affect the amount of money you’re spending per month without actually making progress on the loan balance itself.

    Fixed versus variable interest rate. A fixed rate is locked in for a set period, while a variable interest rate could change based on market factors. A fixed rate provides certainty for the future.

    Loan documentation. A full-documentation loan has more paperwork but better rates, while a low-documentation loan has higher rates since your financial history is less clear.

    Lowest car loan rates in Australia

    Finding the cheapest car rates can mean saving thousands of dollars over the course of the loan. This table shows the lowest car loan rates available for a new or used car loan. The comparison rate gives a closer indication of the overall cost of the loan per year, since it includes the base interest rate plus most fees and charges.

    Lowest variable rateLowest fixed rate
    Base rateComparison rateBase rateComparison rate
    New car (0-2 yrs)4.49%5.10%4.69%5.01%
    Used car (2-5 yrs)5.34%6.11%4.69%5.01%
    Used car (5-15 yrs)5.75%6.68%4.69%5.01%
    Electric car3.99%5.15%

    As the table shows, new cars and electric cars generally have the best interest rates available. Used car loans tend to cost more. This can impact the calculation for whether it’s better to buy a more expensive new car (with a potentially lower interest rate) or a cheaper used car at a higher rate. In some cases, the more expensive car at a lower interest rate could work out cheaper overall, particularly with longer loan terms.

    Accessing the cheapest car loan interest rates in Australia

    While searching for the best car rates, you may spot super low interest rates and assume they’re automatically the best deal. But it’s important to dig deeper to understand how an interest rate really works over the entire duration of the loan.

    In some cases, establishment fees and other administrative fees might make the seemingly lowest car loan rates unexpectedly more expensive. This is why looking at the loan comparison rate is important. This is particularly true if you’re looking to refinance your car loan.

    Looking out for popular marketing tricks

    A common marketing tactic from loan providers, particularly when offered through car dealerships, is to advertise 0% car loan interest rates. While this might sound like a great deal, in reality the 0% interest rate will likely only apply for the very beginning of the term, and will later revert to some higher rate.

    For instance, the interest might be 0% for one year but then 15% for the next six years. This would be much more expensive than just paying 5% for all 7 years. Furthermore, 0% interest promotional deals are often limited to specific car makes and models, reducing the freedom that you have as a buyer.

    The best way to get the facts is by seeing what other customers are saying about the dealership.

    How to find the best car loan rates in Australia

    With all of the advice from this article in mind, these are the general strategies for getting the cheapest car loan rates possible:

    • Be aware of the average market interest rates. When you compare car loan rates from several providers, you’re less likely to get overcharged.

    • Negotiate on price. Haggling is an option and you can ask for a better rate than what is initially offered. You can also try to get a novated lease to help cut down the price by reducing your tax liability.

    • Ask for a loan package deal. Some banks will allow you to combine multiple loans or mortgages into one streamlined arrangement that comes at a lower cost.

    • Buy directly from the dealership. For certain makes, you can get car finance interest rates at discounted prices, particularly if the dealership is eager to clear out their stock to make way for newer models.

    Car loan interest rates FAQ

    Why are secured car loans cheaper?
    Since a secured car loan uses the vehicle itself as the collateral, the loan is seen as less risky by the lender. This usually enables them to offer cheaper interest rates.
    What is the comparison rate for a car loan?
    A comparison rate includes both the advertised base interest rate as well as fees and charges that will factor in the total cost of the loan. Checking the comparison rate helps ensure you are actually getting the cheapest car finance interest rates available after all the fees are included.
    Are car loan rates negotiable?
    Yes, you can absolutely ask the lender to cut you a better deal if their proposed interest rate is too high. They may be prepared to offer a lower rate to secure your business.
    Which bank has the best car loan rates?
    This can vary often, as lenders change their interest rates frequently. It can also be different depending on your circumstances, because car loan interest rates are often tailored to an individual based on their credit score and other factors.
    Can I refinance my car loan to get a better rate?
    If you picked one company and then found cheaper car loan rates elsewhere, you can switch over to get that lower rate. Bear in mind you may be charged exit fees by your current lender, as well as setup fees by the new lender. This might cancel out any potential savings. Be sure to research the overall cost of a new loan, and don’t assume that a lower advertised interest rate automatically translates to lower costs.

    The bottom line for car loan interest rates

    Searching for the best car finance rates in Australia is not easy, since there are countless loan providers with many different kinds of offers. However, you can set yourself up for success by learning the average interest rates on the market, understanding what factors go into calculating an interest rate, and becoming familiar with common interest rate pitfalls. Be sure to check out our other articles on finding affordable car rates.