New car finance deals comparison
When comparing car loans, one of the key factors to look at is whether the interest rate is fixed or variable. Like with a home loan, the differences are similar. If you’ve got a fixed car loan, you have certainty with how much you pay per week, fortnight or month, for the life of your loan. On the flip side, with a variable loan, in a low-interest environment, you might be able to tap into a lower interest rate. However, rates can change at any time, which could mean your payment changes month to month.
Another thing to be wary of is if your car finance is secured or unsecured. Secured car loans use the car as security against the loan… as you might have guessed. This means that if you default on the loan, your lender may repossess your car. Unsecured loans, on the other hand, do not do this, and if you fail to pay, they may come after you in another fashion. A trade-off with a secured loan is that often the interest rate is much lower to compensate. To get the ‘best’ deal on a new car loan, it is worthwhile comparing the range of options to see what works best for you.
Used car loans vs new car loans
New cars depreciate, and can depreciate rather quickly. This is why it’s feasible to look at a near new or demonstration vehicle that’s already taken a hit of depreciation, while getting into a relatively new vehicle. However, new car loans are typically restricted to cars that are either brand new or only two or three years old at most. This is where used car loans step in.
Used car loans are typically for cars up to around seven years old, and the biggest bonus is that in a lot of circumstances the interest rate is the same or similar to the equivalent new car loan. You can compare a range of fixed used car loans below.
How long do new car loans last?
Common loan terms are three and five years. Seven year car loans are also making up a bigger proportion of the market. However, five year loans are arguably the most popular. This is because they offer a suitable blend of both a manageable payment and interest paid over the life of the loan. The shorter your loan term, the less interest you’ll ultimately pay. However, the trade-off is you’ll have a higher weekly, fortnightly or monthly payment. This can make budgeting around the car loan harder. The general rule of thumb when looking at a car loan term is to pick the shortest one you can budget.
How to get a low interest rate on a new car loan
In a low-interest environment, it might be surprising to learn that car finance interest rates can still top 10% per annum. However, there’s a few things you can do to maximise your chances of getting a lower rate:
- Have a good credit score: Many lenders offer tiered rates, which can be based on your credit score. The higher your score, the lower your interest rate is likely to be. Note that you don’t necessarily need a lengthy credit history to have a good score, but any line of credit you apply and get rejected for can reflect badly on your credit score. Many agencies allow you to check your credit score for free once per year.
- Get a secured car loan: As mentioned before, if you secure your car against the loan, you could receive a lower interest rate as the lender assumes less risk.
- Have a deposit or choose a balloon: If you’re willing to front up with a deposit, this will lower total interest paid over the life of the loan. Conversely, a balloon payment is similar, only it’s applied at the end of the loan, and can be around 30% of the car’s value. If you’re opting for a balloon, make sure you budget for it to avoid a nasty surprise three, five, or seven years later!
Aside from that, it pays to shop around. Don’t just stick to dealership finance or the big banks - there are lots of lenders out there worth taking a look at.
How to finance a new car
Financing a new car is easier than you think. Usually it’s a case of narrowing down a lender, and applying online. From there, many lenders also offer pre-approval, which is usually a fairly quick process. This way, you can shop around with a budget in mind, so you’re not shopping around for a Ferrari with a Corolla budget. After you’ve found your dream car, the lender then does all the checks and balances and you get your mitts on the keys in no time.