Average Car Loan Interest Rate

Average car loan interest rates in Australia are at record lows. But they mightn’t stay that way, and there are also plenty of high interest car loans that you should avoid.

Read on to find out everything you need to know about car loan interest rates in Australia, including answers to FAQs.


What is the average interest rate on a car loan?

The average interest rate on a car loan in Australia in 2021/2022 depends on a range of factors, including:

  • whether the loan is secured or unsecured,
  • whether the interest rate is fixed or variable,
  • the range of different lenders in the market,
  • whether the vehicle is new or used, and
  • borrower credit scores

Let’s look at each of these influences in turn.


Secured vs unsecured loans

Secured car loans have lower interest rates because the car is collateral security. This is financial jargon that means that the lender can legally repossess and sell the vehicle if you don’t make your repayments. Secured loans are therefore lower risk for the lender, so interest charges are lower.

You can take out secured finance for personal or business vehicles. It’s called a chattel mortgage for a business vehicle.

Unsecured loans on the other hand don’t require you to put your car up as security to the lender. That obviously means that your lender can’t repossess and sell your car if you don’t make your repayments, though they may take other legal action against you.

Unsecured loans are higher risk to lenders. That’s why they have higher interest rates than secured loans.


Fixed vs variable interest rates

Car loan interest rates can be either fixed or variable for some or all of the loan term. Standard car finance terms in Australia are between one and seven years. Fixed interest rates don’t change even when market ones do.

If market interest rates rise, a fixed car loan rate (and the repayments) will stay the same. That’s great when rates rise, but if they fall, you’ll pay more interest on a fixed rate loan and your repayments will stay higher than they would if you had a variable rate car loan.  The vast majority of car loans are fixed rate loans.

Variable interest rates can move up or down based on market movements. If market rates rise, so will variable car loan rates. Your repayments will also increase because you’ll be paying more interest.

On the other hand, if market rates fall, so will your variable car loan rate and repayments.

The bottom line is that it’s great to have a fixed rate locked in if market rates rise, but better to have a variable interest car loan if they fall.

Unfortunately, no one can predict for sure what interest rates will be in the future. But with Australia’s current interest rates being at record lows, many experts are predicting that they won’t fall further. The only way may be up for interest rates in Australia in the future. Fixed car loan interest rates in Australia in 2021/22 are higher than variable ones for this reason.  Lenders want to cover themselves against the risk of rising interest rates.


The range of different lenders

There is a huge range of lenders in the Australian car loan market, including:

  • banks
  • credit unions
  • finance companies
  • dealer-arranged finance.

The interest rates of all of these different lenders influence the average car loan rate. Some lenders charge higher interest rates than others. For example, dealer-arranged finance often has higher interest charges. You should avoid dealer-arranged finance, even though it may seem convenient or a salesperson in a car yard will try hard to talk you into it. The finance will usually favour the dealer more than you.

The best way to get yourself a great deal is to talk to a car finance broker. Car finance brokers arrange vehicle finance for a living, so they know where great deals are. They work for car buyers, not car lenders.


Whether the vehicle is new or used

Interest rates on new car loans are lower than those for used vehicles. That’s because new cars have a higher resale value than used cars, so there’s less risk to the lender.


Borrower credit scores

Borrower credit scores also affect the average car loan rate. You mightn’t realise it, but credit reporting agencies in Australia compile your credit score. Lenders check it when you apply for finance. If you have a good credit score, you’ll be more likely to get approved for a car loan with a low interest rate.

You’ll have a good credit score if you have a history of repaying all your debts on time. This includes debt like loans, credit cards and even services like mobile phone and electricity accounts.

But if you have a bad credit score, you’ll either have your car loan application rejected or you’ll be charged a higher interest rate.

You can check your credit score for free online. You should do that before you apply for any finance. A good credit score is 800 or more. A bad credit score is anything below 600.


Other Factors That Affect Your Best Car Finance Interest Rate

In addition to the above, many lenders vary interest rates depending on:

  • Home Ownership status
  • Business loan versus a loan for private use
    • For businesses, rates will vary depending on how long the company has been registered for GST, and whether the business has up to date financials.
  • Whether the car is to be purchased from a Dealership or a Private Seller.
  • How much of a deposit is being paid on the car.

Sound complex? It is!  Don’t waste your time applying with 20 different lenders or it will affect your credit score.  Speak with a broker like Autocarloans; our brokers will assess your unique situation and then tell you what interest rate they can achieve for you from our panel of over 50 lenders.


Getting a car loan with bad credit

It’s possible to get a car loan in Australia with bad credit. You’ll just have less lenders who will be willing to approve your application, and they’ll also charge you a higher interest rate. That means you’ll pay more interest and your repayments will be higher.

Getting a lower interest rate can save you a LOT of money! If you have a bad credit score, you could be charged 20% (or more) to get a car loan.

If you have a bad credit score, try and improve it before you apply for a vehicle loan. You can do this by:

  • repaying any overdue debts you have,
  • getting rid of your credit cards,
  • paying all your current bills on time, and
  • avoiding applying for any new debt.

What is a good interest rate on a car loan?

A good interest rate on a car loan is the lowest one that you’re eligible for. A business owner who has an established business and who owns a home, who is buying a new car with 20% deposit, at the time of writing may be eligible for an interest rate of 2.95%.  On the other hand, a private buyer with a poor credit history buying an old car might not be eligible for anything under 22%.  Therefore it is very difficult to work out your interest rate with so many lenders and loans available in the market.  That’s where using a car finance broker can really help you.

When you’re looking at car finance interest rates, you’ll notice there are two listed. One is the interest rate and the other is the comparison rate. The comparison rate includes lender fees as well as the interest rate, so it will always be higher than the interest rate (or at best, equal if a lender doesn’t charge any fees, which is rare).

Always use the comparison rate when comparing the cost of different loans. It’s possible for one loan to have a lower interest rate than another, but still be more expensive because it has higher fees. The loan with the lowest comparison rate is the cheaper option and the best value for you, provided it has all the features you need.

Lenders in Australia must advertise their comparison rates to comply with Australian consumer credit law.


The best car loan rates today

The best car loan rates in Australia today depend on whether you’re looking at the interest rate or the comparison rate. You can currently find car loans advertised with an interest rate that starts with a ‘2’, but as explained above, it’s the comparison rate that really matters. The lowest comparison rates at the moment start with a ‘4’.

You will be eligible for both a low interest rate and a low comparison rate if you apply for a secured loan at a variable rate for a new car, and you have a good credit score.

A vehicle finance broker can help you to find a great deal.


Why is a 72-month car loan bad?

As mentioned earlier, standard car loan terms in Australia are between one year (12 months) and 7 years (84 months). The most common car loan terms are five years (60 months).

If you take out a longer term (like 72 months or 84 months) your repayments will be lower, but you’ll also pay more interest. But it may be your only option if you have a bad credit score.


Other car loan interest rate FAQs

How can I reduce the amount of car loan interest I pay?

There are five main ways to do this:

1) choose a loan with the lowest interest rate.

2) choose a loan with a shorter term if you can afford the repayments.

3) buy a cheaper car so you don’t have to borrow as much.

4) make additional repayments if you can afford it.

5) make weekly or fortnightly repayments instead of monthly. This reduces how much you owe faster.


How can I lower my car loan repayments?

There are five main ways to do this:

1) choose a loan with the lowest comparison rates.

2) choose a loan with a longer term, though it’s important to understand that you’ll end up paying more interest overall.

3) buy a cheaper car so you won’t have to borrow as much.

4) pay a larger deposit so you won’t have to borrow so much.

5) include a balloon payment. This is a larger single repayment at the end of the loan to make your regular repayments smaller.


What are there two rates on a car loan?

One is just the interest rate. The other is the comparison rate that includes the interest charge plus fees.


Is the comparison rate always higher than the interest rate on a car loan?

Usually, but not always. It may be equal to the interest rate if the lender doesn’t charge any other fees, but that would be unusual.


Can the comparison rate ever be lower than the interest rate?

No, because the comparison rate includes the interest charge.


How can I reduce the amount of car loan interest I pay?

Choose the loan with the lowest comparison rate.


Does a loan interest rate include fees?

No, only the comparison rate does.


Should I get a fixed or variable rate car loan?

There is no right or wrong answer to this question. It depends on your individual financial circumstances. Fixed interest rates can give you the peace of mind that your repayments won’t change even if market interest rates go up.
And even though fixed interest car loans are currently higher than variable rates, variable rates may rise during your finance term.


Are fixed interest rates always higher than variable ones?

They currently are, but this isn’t always the case. You should always check. If fixed rates are lower than variable ones, it’s a sign that lenders think market rates are going to go down during the finance term.


Are car loan interest rates negotiable?

They can be, but only if you’re a skilled negotiator. Car finance brokers negotiate with lenders for a living. A good broker will try and negotiate the lowest possible rate for you.


Will I get charged a higher interest rate if I have a bad credit score?



Will I qualify for a lower interest rate if I have a good credit score?

Yes, provided that you can afford your repayments.


Should I take out a secured loan to get a lower interest rate?

Yes, if you want to save money by paying less interest.


What is the Personal Properties Securities Register (PPSR)?

The PPSR is a government website where lenders can legally register their security interest in an asset (such as a vehicle for a car loan). This registration allows the lender to repossess and sell the vehicle if a borrower doesn’t make their repayments.

The security registration is removed from the PPSR when the loan is fully repaid.


Do unsecured loans have higher interest rates?



Should I buy a new or used car to get a lower interest rate?

If you want a lower rate, buy a new car.


Are interest rates on used cars loans higher?



Will I get a lower interest rate with dealer finance?



Can I get a car loan for a private sale?



Will getting a guarantor help me to get a lower interest rate if I have a bad credit score?

Yes. A guarantor is a person (usually a family member) who guarantees a loan. This means that they guarantee to make your repayments if you don’t make them. It’s a legally enforceable arrangement to lower the lender’s risk.


Is a bad credit score permanent?

No. If you have a bad credit score, you can improve it over time by paying all your debts on time and reducing your overall debt level.


Can I get pre-approved car finance?

Yes, if you meet a lender’s eligibility requirements (different lenders have different requirements, and a good broker knows what they are).

Getting pre-approved finance is a smart thing to do. It lets you know how much you can afford so you can look for cars that are in your price range. It also gives you negotiating power with sellers. Always get pre-approved finance before you walk into a car yard to avoid being talked into more expensive dealer finance.


The bottom line

Buying a car and getting finance is a BIG decision. Getting the right loan for your needs at the lowest possible comparison rate can save you a LOT of money. It’s best to get professional advice.


How we can help

If you’re looking to buy a new or used car from a dealer or private seller and you need finance, talk to one of our expert brokers at Auto Car Loans.

We’ll save you time and hassle by helping you find you a great deal from our panel of over 50 Australian lenders. We’ll also help you with your application so you can get it approved quickly.

Simply call 1300 301 051 during business hours to speak with one of our licensed and experienced car finance brokers. We’d be happy to answer any questions you have and we’ll take the time to understand your situation so that we can provide you with the right advice.




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