When it comes to securing an affordable car loan, the interest rate of your loan is extremely important. This is because there’s an enormous disparity between interest rates offered by various lenders. Throughout 2023 we’ve seen interest rates as low as 5%, and interest rates as high as 17%! This higher interest rate would add up to an extra $10,000 over the life of a $30,000 car loan with a 5-year term. It’s no wonder so many people are on the lookout for a low rate car loan! Fortunately, applying some best practices for car loan rates will help you to secure a competitive deal.
Securing Affordable Car Finance
When looking for ways to reduce car loan interest it’s important to understand what factors will influence the rates you’re offered. These include:
Fixed vs. variable: A variable interest rate will move up and down over time, echoing the movements of the official cash rate set by the Reserve Bank of Australia (RBA). A fixed interest rate will give you the security of one pre-set monthly repayment for the life of the loan. However, this security often results in a slightly higher interest rate.
Secured vs. unsecured: A secured car loan (where the vehicle you buy acts as collateral against the loan) represents a lower risk for the lender. As a result, borrowers who opt for a secured car loan will usually be rewarded with a lower interest rate.
Your credit score: If you’ve got a great credit score then lenders will feel more confident offering you a competitive interest rate (because your credit history proves you’re less likely to default on the loan).
Choice of lender: Lenders set their own interest rates. This means that you’re more likely to get a lower interest rate if you compare loan products from a wide range of lenders.
Choice of features: The more features a loan includes, the higher the interest rate. If you won’t need a redraw facility or you’re not planning to make additional repayments, you could lower your interest rate by eliminating these loan features.
Top 4 Low Rate Car Loan Tips
If you’re committed to getting the lowest interest rate possible, here are our top 4 best practices for car loan rates:
1. Look after your credit score: One of the most important of the low rate car loan tips is also often the most overlooked: protect your credit score! Applying to multiple different lenders or allowing dealerships to run multiple credit checks can make it seem like you’re experiencing financial difficulty (a big red flag to future lenders).
2. Shop around: If you don’t shop around then you’re not going to get the best possible deal to suit your circumstances. Doing your own homework to try to compare all the products from the different lenders can be time-consuming and feel like it’s more hassle than it’s worth. Using a professional broker who understands the market, the products and which lenders will match with your needs is one of the most effective ways to reduce car loan interest and get the right deal for you.
3. Consider shorter loan terms: A shorter loan term will typically reduce the risk of a borrower defaulting. It also ensures that a lender receives the principal amount of the loan back faster. Because of this, many lenders will offer a reduced interest rate for a car loan with a reduced term.
4. Negotiate: Our final low rate car loan tip is to negotiate for the car loan you want. However, this is often easier said than done. Many lenders will be unwilling to enter into negotiations with the average borrower. The best way to effectively negotiate is to use a car finance broker who already has connections within the industry.
How to Negotiate Car Loan Rates
The experienced team at Muscle Money knows how to negotiate car loan rates on behalf of their customers. We also have access to a wide panel of lenders and the necessary technology to compare loan products quickly and easily. And we’re committed to protecting our customer’s credit scores. Taking advantage of the Muscle Money expert guidance and wide lender network is the best way to reduce car loan interest effectively. For substantial savings over the life of your car loan, whether it’s for a green car loan or a standard car loan, you need to secure a competitive interest rate. To find out how much you could save, and to get that low rate car loan you want, contact the team at Muscle Money today.
Caleb Waye-Harris, Senior Manager of Asset Finance at Muscle Money, has almost 15 years of relevant experience in the finance industry. His extensive background includes project management, consumer and commercial lending and asset-based lending.
