If you’re wondering about current car loan rates and getting a car in the near future, you’re not alone. Car culture in Australia is as deeply ingrained as our commitment to sports and devotion to coffee. Cars play a key role in the personal, work and social lives of millions of Aussies every day. More than that, cars are a symbol of freedom. But cars are also expensive.
According to a survey by Finder, around 2.4 million Australians currently have a car loan. Additionally, data from the Australian Bureau of Statistics shows new vehicle lending hit $1.4 billion in October 2023. Considering how many of us are investing in car loans, a surprising number remain unaware of how important car loan rates are.
What are the various kinds of car loan rates? How can you ensure you get competitive car finance rates? And how can you avoid the dreaded car loan early termination fee?
Car Loan Rates: Understanding the Basics
Car loan rates refer to the interest you’ll be charged by the lender each month. In Australia, there are two main types of car finance rates: fixed and variable.
- Fixed: Where the rate remains constant throughout the loan term, so your monthly repayments remain the same.
- Variable: Where the rate fluctuates based on market conditions, resulting in changes to monthly payments over time.
Car finance rates are determined by various factors, including the loan amount, borrower’s financial history and the type of loan.
What Factors Influence Car Finance Rates?
Market conditions have a definite impact on the interest rates being offered by car loan lenders. These conditions are beyond your control. But there are additional factors you can control that also influence what car loan rates you’re offered. These include:
- Your credit score: The higher your score, the lower the interest rates.
- Loan amount/duration: A larger loan with a short loan term can attract a LOWER interest rate, but a longer loan term can attract a HIGHER interest rate.
- Type of loan: A secured loan (where the car acts as collateral) carries a lower risk than an unsecured loan.
- Homeownership status (homeowner, renter, or boarder): Homeownership can indirectly influence related financial aspects, such as insurance costs and potentially the terms under which car finance is offered, especially if financial institutions consider overall creditworthiness and risk profile.
- Age of vehicle: Generally, lenders offer lower interest rates for newer cars compared to older ones. This is because newer vehicles are seen as less risky in terms of reliability and depreciation rates.
Lenders assess these factors to manage risk and tailor interest rates. Understanding these dynamics empowers you to make informed decisions and secure the best rates for your circumstances.
Exploring Car Loan Fees and Charges
You’ll also need to consider other associated costs before deciding on a car loan product. Car loan fees and charges may include:
- Application fees
- Loan establishment fees
- Monthly account fees
- Early termination/payout fees
Car loan fees and charges will impact your initial borrowing amount and how much interest you’ll end up paying overall. Monthly fees and late payment fees may seem small, but they’ll accumulate over time and could add significantly to the long-term cost. This is why it’s crucial to factor in potential car loan fees and charges when evaluating the ultimate cost of your car loan.
What You Need to Know About Car Loan Early Termination Fees
A car loan early termination fee is a charge imposed by lenders when a borrower pays off their car loan before the agreed-upon loan term ends. This fee compensates the lender for the added interest they would have received if the borrower had stuck to the original repayment schedule.
Car loan early termination fees vary among lenders and loan agreements, so make sure you carefully review any fine print before committing to a lender. Car loan early termination fees can be minimised or avoided by choosing a lender with more flexible payment terms or by negotiating the terms before signing a contract.
A Broker Can Help You Secure Competitive Car Finance Rates
A proactive approach to understanding and managing car loan costs could end up saving you a substantial amount of money. And by far the easiest way to do this is to talk to an experienced car finance broker. At Muscle Money, we can compare car loan rates from a variety of lenders and even negotiate for a better deal on your behalf. We’ll carefully review the impact of any car loan fees and charges and ensure your credit score is protected throughout the application process.
Take the first step towards securing the best car loan rates by contacting 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.
