Does the best car loan have the lowest interest rate?

If you’re itching to get behind the wheel of your dream car, or you just need something to get you from A to B, a car loan can get you there faster.

The cheapest car loan is bound to be the one with the lowest interest rate, right? Well, not necessarily.

Up-front fees, ongoing service charges and other hidden costs can make your car loan more expensive than you bargained for. It’s also important to consider the features of your car loan. A loan with slightly higher interest rate might allow you to make extra repayments and pay off the loan early, reducing the cost of your loan overall.

Here are some of the extra charges that could apply to your car loan:

  • Establishment/upfront fee: You could be charged a fee when you apply for a car loan to cover the cost of assessing your application and preparing loan documents.
  • Service fee: Monthly account keeping fees add up over time. It’s worth calculating the total cost for the life of the loan so you’re not caught by surprise.
  • Late payment fee: Your lender may charge a fee if you default on your loan or miss a payment.
  • Early repayment fee: Do you hope to pay your car loan off sooner? Seek out a lender who doesn’t charge an early repayment fee so you’re not penalised for your stellar efforts.
  • Other fees: Check out the terms and conditions of your car loan for a full list of fees and charges.

Ever heard of a balloon payment? They’re not as much fun as they sound. Rather than paying off your car with party balloons, some lenders will require an inflated payment at the end of your loan, in order for you to own the car. These car loans might have a low interest rate, but it’s a good idea to calculate whether the total repayments on the loan will end up being higher with the balloon payment before committing.

It’s worth taking the time to understand how car loans work. Finding the right loan for your personal circumstances will help you enjoy your new wheels even more.

Take your pick

A car loan is a type of personal loan used for buying a motor vehicle. Whether you’re after a ute for work, a 4WD, motorbike, or a family car, a car loan can be a great way to hit the road when you don’t have enough savings to buy it outright.

When you take out a car loan, your lender usually pays the car vendor on your behalf. And then it’s your responsibility make monthly repayments to the lender over a period of years.

Car loans usually range from $5,000 to $100,000 with loan terms from one to 10 years. Interest rates can be as low as 2.99% up to 10% for secured loans, and up to 15% for unsecured loans.

The amount you can borrow depends on your financial situation, including your income, expenses and other debts. Lenders will also check out your credit history to assess whether you’re a trustworthy borrower. 

It’s helpful to research your options when deciding which type of car loan is right for you:

  • New car loan: Used to buy cars that are brand new, this type of loan is usually secured by the car. This means if you can’t make repayments, the lender can take the car and sell it to recover the cost of the loan. Some lenders will approve a new car loan for cars that are 2 or 3 years old. The higher the value of the car, the lower the interest rate may be on this type of car loan.
  • Used car loan: Ideal for buying cars that are up to 6 years old, a used car loan is usually secured by the value of the car.
  • Unsecured car loan: Available for buying cars older than 5 or 6 years old, an unsecured car loan usually has a higher interest rate than a new car loan or secured car loan. This is because an unsecured car loan does not require an asset to be provided to secure the loan, so it is considered riskier for the lender. The lender assesses your credit score to approve the loan.

Fixed or variable interest rate?

When you apply for a car loan, you have the option to choose between a fixed or variable interest rate.

It’s important to weigh up the pros and cons of both loan types so that you can make a decision that’s safest for your financial situation.

Fixed Interest Rate

Simply put, a fixed interest rate never changes, meaning your repayments remain the same for the life of the loan.


  • ·You know exactly how much your repayments are each month.
  • You can plan and budget with certainty, knowing your repayments won’t change.
  • You’re protected from future interest rate rises.

The reality is that cars are a basic necessity for most of us. If you are unable to save enough to purchase one, a car loan can help bridge the gap in your budget and get you on the road.

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