Compare some of Australia's cheapest car loans

A car loan is a type of personal loan that’s used to borrow money to buy a vehicle. You'll pay this money back to the lender, plus interest charges. The rate at which interest is charged on a car loan will affect the cost of your repayments.

Settling for dealer finance could mean paying more than is necessary for your car. Comparing car loans with the help of comparison tools is one of the best ways to score a cheap deal and get the right loan for your situation.

Whether you’re after a new or used car, comparing car loan interest rates can be a great place to start your search. The lower the interest rate, the less you'll need to pay back over the life of the loan - especially if you’re able to repay the loan quickly.

The interest rate you’re offered may depend on a range of factors, such as the amount you borrow and the length of the loan. Your credit score could also be an important consideration for some lenders. 

Of course, there is much more to a car loan than interest rates. But if you want to find the cheapest option for your situation, shopping around and comparing rates could be a good start.

Many people who want a cheap car loan will start by searching for a low interest rate. However, fees and other charges can make a low-rate car loan cost more than you may expect. Sometimes a low-rate car loan with high fees can actually cost more in total than a higher-rate car loan that charges low or no fees. 

To get a more accurate idea of the relative costs of different car loan options, check their comparison rates. These combine each loan's advertised interest rate with its standard fees and charges, to give you a better idea of if a cheap car loan really is as cheap as it sounds. 

Keep in mind that even the comparison rate won’t include the loan’s every additional cost, such as any non-standard fees and charges, often associated with extra car loan features and benefits. It's worth looking beyond the comparison rate and working out which features and benefits of different car loans may provide the most value to you.

If you fix your car loan, the fixed interest rate will remain steady during the fixed period, even if rates rise across the market. Fixing your rate like this can help you calculate your car loan’s total cost in advance, and budget accordingly. However, you may not get to enjoy savings if variable interest rates fall, as your fixed rate car loan repayments will stay the same.

If you choose a variable rate loan, your repayments could drop if interest rates fall. However, your repayments will increase if your lender raises their rates. Because lenders may raise or lower their variable interest rates at any time, in or out of cycle with the RBA, this can make estimating your car loan’s cost and budgeting for the repayments more challenging.

Secured car loans tend to have lower interest rates than unsecured loans. By using an asset, usually the car, as collateral for the loan, the lender can repossess the asset if you default on your repayments, reducing the risk of lending you money.  

Some lenders only offer secured car loans to borrowers who are buying new cars, or specific used car models under a certain age. If you don't meet these criteria, you may not be able to get a secured loan with a lower rate. You may instead find yourself paying more for a used car loan than you would for a new car loan.

Keep in mind that newer cars often have higher price tags than some older cars. Even if you can get a lower interest rate, your car loan may not always be cheaper, as you may need to borrow more money. You may want to calculate a car loan’s costs before you consider signing on the dotted line.  

Some car loans let you make extra repayments and repay the loan early, which could mean paying less in interest charges. This could help make a car loan even cheaper over the life of the loan.

However, some lenders charge early exit fees or early repayment fees if you pay your car loan off early. This lets them make up for the interest they'll be missing out on from if you repaid the loan over the full term.

Some car finance lenders also offer the flexibility to redraw your extra repayments from a car loan if you need to access this money again, though redraw fees may apply. Also, redrawing your extra repayments means you’ll no longer be ahead on your car loan, so you’ll no longer benefit from interest savings.

Want an affordable car loan? What's more important to you: cheaper repayments in the short term, or paying less in interest charges over the longer term? 

Car loans can typically be paid back over one to ten years. The length you choose for your loan will influence the affordability of your repayments and total interest paid. 

A longer car loan term means you'll be making more repayments over time, but each one will be smaller than if you repaid the loan over a shorter period. However, this also means being charged interest on more occasions, increasing the total amount you'll pay the lender over the long term.

Shortening your car loan’s term will increase your repayments, as each one will repay a larger portion of the loan. However, the faster you pay off your car loan, the less you'll pay in total interest.

Another option that may work for some borrowers is a balloon payment, which is a lump sum paid at the end of the loan term. This can help to both shorten the loan term and lower the monthly repayments, but borrowers must be confident that they will be able to manage the significantly larger final repayment. One option could be to refinance the balloon, though this could stretch your car loan term out for even longer, costing more in total interest.  

Ultimately, you'll have to decide what's more important to you - cheaper repayments now, or paying less in total interest. In other words, each person needs to decide on their own definition of a ‘cheap’ car loan.

As well as paying interest on your car loan, you’ll also need to budget for the lender’s fees and other associated charges. While some of these costs are inescapable, you may be able discount or avoid some other charges, which could help you save money in the long run. 

Car loan fees can include, but are not limited to:

• Application fee or establishment fee
• Ongoing fee (e.g. annual fee) 
• Late payment fee 
• Break cost fee (if you pay off the loan before full term is over) 
• Discharge fee

A comparison rate can come in handy here, as it combines a loan's interest charges with many of its ongoing fees into one rate, to help you get a clearer picture of the loan’s total cost. The higher a comparison rate compared to the advertised rate, the higher the ongoing fees may be. 

For consistency, a comparison rate is based on a 5-year, $30,000 car loan, so it may not exactly reflect your car loan’s actual costs, but can provide a guideline of which car loans could cost more than others. 

Registering your vehicle is required to legally drive your car in your home state or territory. 

While the ongoing cost of car registration is often handled separately to your car loan, some lenders allow borrowers to add this cost onto their loan so it can be paid off gradually over time, rather than in one lump sum.

Remember that adding registration onto your car loan will increase the amount you’ll need to pay back, which can increase your monthly repayments. Additionally, you’ll be paying interest on your car registration, which can cost you more over time.

Like registration, car insurance is another significant ongoing cost to consider when you’re budgeting to buy a car. Compulsory Third Party (CTP) insurance is required to legally drive a car in Australia, and comprehensive car insurance can help to provide additional cover and peace of mind in case of accidents, theft or other damage or loss.

Much like registration, some lenders may allow you to add the cost of car insurance onto your car loan, to be repaid in instalments over time. While this may help to ease some of the short-term pressure on your household budget, you may pay more over time when you consider interest charges.

The cheapest car loan may not always be the best car loan for you. You’ll need to research what you want from your car loan before making a choice.  

Even if you find the bank that offers the lowest car loan interest rate, that's no guarantee you'll be getting the cheapest possible deal, or even decent service. A car loan with a low interest rate but high ongoing fees and charges may turn out to be more expensive than an alternative with a higher interest rate but minimal fees. Looking at the comparison rate could help you get a better idea of a car loan’s total cost.  

Comparison tables can be a useful tool to help you narrow down the best bank options for your requirements. Apply your criteria to the filters and you can narrow down your search. Find and compare loans that suit your budget and needs.

You can use a car loan calculator to estimate your car loan repayments, and see how small changes to the loan amount, interest rate, loan term and repayment frequency could affect a car loan’s overall cost. This could be a helpful tool to see whether a loan suits your budget.

Note: Calculations based on interest rate of 9.5 per cent and loan term of 5 years. Ongoing monthly fees are $10. Does not include upfront costs. 

Using this example, you can also see how ongoing fees can affect a car loan’s total cost. In some instances, you’ll end up paying hundreds of dollars extra. Using RateCity’s car loan comparison table, you can click on the ‘product info’ button to view all of a loan’s fees.

Finding the cheapest car loan rates could help save you a significant amount of money. But there are several other factors besides car loan rates that you should consider to find an affordable car loan for your situation.

Compare rates from multiple lenders

Shopping around for a car loan by comparing rates from multiple lenders could help you find a competitive interest rate deal. One way you can do this is by comparing car loans side by side with the help of comparison tables.

Remember to check the comparison rate to get an idea of each car loan's overall cost, including interest charges and standard fees. You could also use filters to narrow down your options to car loans that suit your needs, then sort your results by their interest rates. 

Another helpful tool is the car loan repayment calculator to help you estimate the repayments for different car loans. After calculating your repayments, you can compare car loans that may match your requirements and may be better suited to your financial situation.

Consider the loan term

The length of your car loan could also affect its total cost. A low interest rate coupled with a longer loan term may result in smaller monthly repayments, but you could end up paying more in interest over the life of the loan. Make sure to consider the duration of your loan when evaluating the total cost of the loan to you.

Evaluate the fees and other costs

It’s important to consider all the costs associated with a car loan, including interest rates, fees, and additional charges. While standard fees are accounted for in the comparison rate, there may also be extra fees to pay. 

For example, some lenders may also charge a fee for paying off a loan early. If you're looking for more flexibility in the way you manage your debt, consider looking for options without any prepayment penalty.

View the RateCity Car Loan Leaderboards

RateCity's Real Time Ratings™ combine the cost (e.g. interest charges and fees) and flexibility (e.g. approval/funding time, extra repayments, redraw and early exit penalties) of car loans into a single simple star rating, giving you a better idea of each car loan’s potential value for money. These ratings are calculated as you use the site, making them as up to date as possible. You can compare some of the top-rated car loans in individual categories at RateCity's Leaderboards, and some of the top-rated car loans may also become eligible for a RateCity Gold Award.

Remember that even if you can't get the cheapest rates when you first apply for your car loan, you may be able to refinance further down the track. If your financial situation has changed, you may qualify for a car loan with lower rates and/or lower fees, allowing you to save some money.

But before you start the refinancing process, check if fees or charges apply, and remember that extending your car loan term may cost you more money in total, even if your new interest rate is lower.

If you're feeling overwhelmed or need guidance to navigate the car loan market, consider consulting a car loan broker. Much like how mortgage brokers help borrowers on their home loan journey, car finance brokers can help you through the process of vehicle finance. 

From searching for a car loan that suits your financial goals and situation to completing your application, a broker can assist you at every stage of your car loan journey. Simply contact a car loan broker in your area today to start benefiting from their local knowledge of the market.