Fixed car loans for new cars

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayment
 
4.67% 5.22% $562 More details
New Car Loan
5.45% 5.80% $572 More details

Data accurate as at 06 July 2020. Rates based on a loan of $30,000 for a five-year loan term. Products sorted by advertised rate, then by company name (A-Z). View disclaimer.

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So you want to get a car. You’ve identified the one you want, and can already picture yourself driving around the countryside with the windows down. But even the modest Toyota Corolla, one of Australia’s most popular cars, will set you back at least $20,000 brand new. Not exactly pocket change, so if you’re only saving around $5,000 a year, it could take around four years to save up that money. Of course, it might take you less than that if you earn more or have better savings habits, but you get the idea; cars are expensive, and it’s difficult to just have tens of thousands stashed under your mattress. This is where car loans come in.

Everything you need to know about car loans

A car loan is a type of loan you take out from a lender in order to purchase a car, ute or motorbike. To give you a quick summary of how a car loan works, you borrow money from a lender to buy a vehicle. Over a set period of time (the loan term), you will pay back this money to the lender plus interest. Car loans are a useful option to have, as you don’t need to have the full value of the car in cash in order to drive away in it. Let’s take a look at how this works:

Car Loan Example: Jake gets a new ute

Jake has always wanted a ute, and has his eyes on a Toyota Hilux, Australia’s most popular car model. He finds a new one available for $30,000 at his local dealership, and decides to speak to his lender about getting a car loan. He wants to buy the ute with $5,000 of his savings and a $25,000 car loan. After reviewing his reliability as a borrower, the lender agrees to provide Jake with a $25,000 car loan at an interest rate of 5.00% p.a, for a period of five years. His car loan repayments will be around $472 a month. There is also an upfront establishment fee of $400. Jake buys the ute and drives away with it. After the five years have passed and Jake has paid off the loan, he will have paid a total of $33,707 for the Hilux, which includes:

  • $5,000 of his own savings
  • $25,000 car loan
  • $400 car loan establishment fee
  • $3,307 in interest

He will have also paid thousands over the years in other car-ownership costs such as maintenance, fuel and insurance.

As you can see in this example, there are several key components of a car loan:

The interest rate

Since interest is the biggest cost of a car loan, the interest rate is the first thing you should look at. It is the rate you’re charged per annum on the outstanding loan balance. In the example above, the interest rate is 5.00% – quite a low rate in today’s market. You should always ensure that you know what the interest rate is on your loan, and compare the interest rates offered by a host of different lenders before making a final decision. There are two kinds of car loan interest rates:

  • Fixed rates: fixed interest rates remain the same for the duration of the fixed term, regardless of market movements or changes made by the lender.
  • Variable rates: variable rate car loans mean that your interest rate can change. This can be both good and bad: good if your lender drops the rates on the loan product, but bad if they increase it.

Another rate you’ll see is the comparison rate – more on that in the fees section.

The loan period

The loan period or term can be as short as one year or as long as seven years, at least among reputable mainstream lenders. A longer term means you’ll be paying off the loan for longer, but will make smaller repayments. This will cost you more in interest, however.

The repayments

The most common repayment frequency is monthly, but ask your lender if they allow fortnightly or weekly repayments. Making more frequent repayments can help you pay the loan off sooner and with less interest, especially if the value of these regular repayments are at least half (fortnightly) or a quarter (weekly) of your monthly repayments.

The fees

Our example above only included one fee, but there are several others you could be charged that can significantly add to the cost of your loan. The fees to watch out for include:

  • Upfront/establishment fee: the fee to take out the loan
  • Ongoing fees: the maintenance fee charged on the loan
  • Break fee: a penalty for when you pay off the loan in full before your term ends
  • Discharge fee: a closing fee to cover closing the account
  • Late payment fee: for when you fail to make a repayment on time

To help consumers get a better idea of a loan’s cost (interest rates and fees), lenders are legally obliged to display a comparison rate next to the advertised rates of their products. This comparison rate is calculated to include upfront and ongoing fees, so it will usually be higher than the advertised interest rate. A car loan that has a comparison rate that is much higher than its advertised interest rate is an indication that it has high fees relative to its interest rate.

Balloon payment

Many car loan borrowers opt to have a balloon payment in the loan. This is an agreed upon lump sum (typically 30-50% of the borrowed sum) that is paid to the lender at the end of the loan term. Borrowers who want smaller regular repayments (monthly/fortnightly/weekly) can opt for a balloon, but over the life of the loan their total interest costs will be higher.

The lender

Obviously, you need to get the loan from somewhere, and much of the points above will influence on each of the above and how they might affect you. Certain lenders will offer products that offer much better value than others, so don’t just pick the one your neighbour Dave with the garage full of cars recommends.

Frequently asked questions

1. How do car loan pre-approvals work?

pre-approved car loan can be beneficial as it lets you know what you can afford before you go out to buy a car. To get a pre-approved car loan:

  1. Compare car loan providers to make sure you’ve found the right one
  2. Check your credit rating before applying
  3. Gather all of the necessary documents (100 points of ID, income, proof of employment, assets and liabilities etc.)
  4. Contact your chosen lender and tell them you want to apply for pre-approval
2. Are auto loans unsecured?

Car loans can be both secured and unsecured, but the majority of them are secured, meaning the car is used as security against the loan. Should you fail the repay the loan, the car can be repossessed by the lender. Unsecured car loans (which are essentially personal loans) don't have the car as a security, but tend to come with higher rates to compensate for this.

3. Can I refinance a car loan?

Yes, you can refinance your current car loan to a different car loan with different terms, or a different lender with a lower interest rate. When refinancing a car loan, the money borrowed from the new loan will cover the balance of your previous car loan, allowing you to pay off that old car loan before moving onto the new one.

4. What are the common car loan terms?

There are lots of different car loan terms available, but most reputable lenders will allow terms between one and seven years, with 10 years usually the maximum. Your car loan term is how long it would take to pay off the car loan without any extra repayments.

5. How to get a low interest car loan?

There can be many ways to get a low-interest car loan, but one of the best ways could be to maintain a clean credit history. This tells lenders you're a trustworthy borrower, making them more likely to give you a good interest rate. Also, don't forget to shop around to see which lender's are offering the lowest rates. Secured car loans also tend to have a lower interest rate than unsecured loans.

6. What do i need to get a car loan?

Basic car loan requirements often include:

  1. Proof of a steady, reasonably high income
  2. Proof of identity: driver's license, Medicare card, passport etc.
  3. Proof of residence
  4. Proof of your ability to save money (try three-six months)
  5. Proof of your assets (like shares) and liabilities (like credit card debt)

Not having these on hand could reduce or eliminate your chances of having a loan application approved.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $30,000 loan over 5 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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