Best Variable Rate Car Loans From 5.94%

What is a variable rate car loan?

If you are looking for a car loan with flexibility, then you may want to consider a variable rate car loan.

A variable rate means your repayments will change based on whether the lender raises or lowers their interest rates.

A variable rate loan is a loan where your interest rate will move (or ‘vary’) with changes to the market. This means your interest rate can rise or fall over the term of your loan.

Variable rate loans are more uncertain than fixed interest rate loans. This can make budgeting for your interest payments more difficult because you have to take into account potential rate rises. If you aren’t prepared, you could have trouble keeping up with repayments.

How to Compare Variable Rate Car Loans?

When comparing variable car loan offers available from different lenders, it can be difficult narrowing down your final choice. To work out the right car loan option for you, you want to take the following into consideration:

• Interest rate: Arguably, the first thing you’ll compare is the interest rate. Even though the rate is variable (meaning it can fluctuate), you still want to look at the rate that applies to the loan as this will give you an idea of the competitiveness of the product. The higher the rate, the more you will have to pay in interest over the life of the loan.
• Fees: Will you need to pay application fees, late fees, break/exit fees, extra repayment fees, or ongoing repayment fees? These types of fees can add up over time so make sure to find out who charges these (and how much) when comparing variable rate car loans.
• Features: Some lenders may offer beneficial features such as allowing additional repayments, offering redraw facilities, balloon payments, and fee-free exits for paying off your car loan early or refinancing.
• Comparison rate: A comparison rate is a rate which helps provide a better indication of the true cost of a loan by bundling the interest rate plus various fees into a single percentage figure.
• Loan term: Lenders can offer different loan terms ranging from one year to ten years. It’s important to choose a loan term with a repayment schedule that isn’t going to put you in a tough position financially.

Advantages of variable rate car loans

One potential advantage of a variable rate car loan is the possibility of lower interest rates. Some lenders may be willing to offer lower interest rates on variable-rate loans because they appreciate the flexibility of being able to increase the rate at a later stage should they need to.

The flexibility of variable rate car loans is also a benefit for borrowers. Compared to fixed contracts, variable-rate loans often make it much easier for you to make extra repayments, adjust your repayment frequency (e.g. monthly to fortnightly), pay off the loan early or refinance.

Disadvantages of variable rate car loans

The main drawback of a variable rate loan is the possibility that interest rates increase during the loan term, increasing your repayments from the original rate. It’s a risk you need to consider as an extended period of rising rates could put you under significant financial stress if you can’t keep up with rising rates.

Always read the terms and conditions of the loan, as different loans may have different policies towards things like extra repayments or early exits.

What are the different types of car loans with a variable rate?

When it comes to car loans with variable rates, there are typically two loan types to choose from.

Unsecured car loan: With unsecured car loans, lenders do not require you to use your car as security. They don’t require you to use anything as security, which understandably represents a much higher risk for them. To compensate for this risk, lenders offering unsecured car loans will usually charge a higher interest rate, more fees, and probably won’t be as lenient with who they lend to.

Secured car loan: With a secured car loan, a lender uses an asset (the car you’re buying) as collateral against the loan. If you’re in the position where you fail to meet your repayments, the lender has the right to sell or repossess the asset in order to recuperate its funds.