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Car Loan Comparison

There’s a huge range of options in the car loan market in Australia. There are so many lenders and so many car loans available that it’s important to compare your options to get a great deal.

Read on to find out everything you need to know about comparing car loans. Knowledge is power when it comes to making smart decisions.

 

What does comparison rate mean?

Firstly, it’s crucial to understand car finance jargon. One of the most important terms you need to understand when comparing vehicle loans is the ‘comparison rate’.

 

Interest rate vs comparison rate

When you’re looking at a car loan (or any other type of personal finance), you’ll see two rates advertised on each product. The lower rate is the interest rate. The higher rate is the comparison rate. The comparison rate includes the interest rate plus any loan fees (such as loan application and ongoing fees).

All lenders are legally required to advertise the comparison rates on all their consumer finance products, including car loans.

When you’re comparing loans, it’s possible for one to have a lower interest rate than another, but a higher comparison rate. The loan with the lower comparison rate will be cheaper, so always choose it to save yourself money.

The only reason to choose a loan with a higher comparison rate is if it has additional features you need that justify the extra cost.

 

Define comparison rate

The federal government’s ‘moneysmart’ website provides the following definition for a loan comparison rate:

“A rate that helps you work out the true cost of a loan. It includes the interest rate,  and most fees and charges relating to a loan, reduced to a single percentage figure.”

You can find out more about comparison rates here.

 

Who has the best rates for car loans?

You have three main options for getting car finance in Australia.

 

1) arranging for a car loan broker to negotiate with lenders on your behalf to find you a great deal.

This can save you a lot of time and money. Car finance brokers work for vehicle buyers, not lenders or car yards. They arrange vehicle loans for a living, so they know where the great deals are.

 

2) applying to a lender directly yourself.

This can be confusing and time consuming. If you Google ‘car loans in Australia’, you’ll be presented with a huge range of options to wade through.

 

3) using dealer-arranged finance.

This is where you get your finance through a car dealer.

 

Is it better to get an auto loan from a bank or dealer?

You should avoid getting your vehicle finance from a new or used car dealer. The dealer will have a relationship with the lender and the deal will favour the dealer more than  you. The finance might also include high priced add-ons like insurance or servicing.

You should talk to a broker or do your own car finance research before you walk into a dealership. Then you’ll know what a good deal is before you get talked into anything else.

 

Compare car loans

There are a range of factors to compare when you’re looking at your car finance options:

  • the comparison rate.

As mentioned earlier, the loan with the lowest comparison rate is the cheapest.

  • loan features

Different loans will have different features. It’s important to be aware that you’ll usually be charged for additional features, so you need to make sure any you choose are ones that you need and will use.

Examples of car finance features include:

  • the ability to make extra repayments (ideally, without any extra fees).
  • a redraw facility (that allows you to withdraw any extra repayments you make if you need to later).

 

  • loan term

The loan term is how long you have to pay off the loan. Standard car finance terms in Australia are between 1 and 7 years.

If you want to lower your regular repayments, you can take out a longer term (and vice versa).

 

  • repayment frequency

Standard repayments on a car loan are monthly, but many lenders will allow you to make fortnightly or weekly repayments. If you make your repayments more often, you’ll save money because you’ll be charged less interest.

 

  • balloon payment

A balloon payment is a large single payment that can be made at the end of a car loan term. It allows you to have lower regular repayments during the finance term, but of course, you need to be sure you’ll be able to afford the balloon payment at the end.

You’ll also pay more interest if you include a balloon payment in your vehicle loan.

 

  • fixed or variable interest rate

The majority of car loans in Australia have fixed interest rates, but you can get variable rates from some lenders.

A fixed rate stays the same for the entire finance term. This means that your regular repayments will stay the same as well. A fixed rate is a good idea if you need to be certain what your repayments will always be so you know you can afford them.

A variable rate on the other hand can move up or down based on market interest rate movements. If market rates go up, so will your car finance variable rate and repayments (and vice versa).

Variable rates are great if market rates fall, but obviously there is always the risk they will rise, so you need to be confident you’ll be able to afford higher repayments if you take out a variable rate car loan.

 

  • secured or unsecured

Car finance can be secured or unsecured. A secured loan has a lower interest rate, but you have to offer your vehicle as security for the lender. They will register this security on the Personal Property Securities Register until you have fully repaid your loan.

This means that they can repossess and sell your car if you stop making your repayments on time. Your lender will then take any money received from the sale to pay out your loan, and give you the remainder (if any).

Unsecured car finance on the other hand doesn’t require you to put up your vehicle as security for your lender. This means the lender cannot repossess or sell it if you stop making your repayments.

But your lender will charge you a higher interest rate on unsecured finance because there is a higher risk to them of lending you the money to buy your car, especially if you have a bad credit score. A bad credit score means that you have a track record of not paying your bills on time (or at all).

 

Car loan comparison tool Australia

There are a range of online car finance comparison tools that you can use. But it’s important to understand that the information and tools on commercial websites may not give you the full story. Commercial websites are designed to make money, so they charge lenders to advertise on their sites. Those who pay more may be featured or displayed more prominently.

 

What are car loan rates today?

Car finance rates in Australia today are the lowest on record. That’s because market interest rates set by the Reserve Bank are also at record lows. But there are fears that Australia’s rising inflation rates may see rates rise next year. That means it could be a good time to lock in a fixed rate vehicle loan now.

It’s also important to understand that interest rates on used car loans are usually higher than the rates for new vehicle finance. That’s because used cars have already started depreciating in value, so there is more risk to the lender.

 

What is the smartest way to buy a car?

The smartest way to buy a car is to get your finance pre-approved before you buy. Pre-approved finance saves you a lot of time, because you can immediately focus on looking at and test driving cars you can afford.

Pre-approved finance can also give you a lot of negotiating power. Both dealers and private sellers looking for a quick sale are attracted to buyers who don’t have to insert ‘subject to finance approval’ into the sales contract. You may be able to haggle a cheaper price because your offer will be a firm sale.

Talking to a car finance broker is the easiest way to get your vehicle loan pre-approved. Because brokers are across the car finance market, they know where the good deals are and they know the lending criteria of different lenders. A good broker will recommend the lender who will most likely approve a good deal for you.

Besides getting your finance pre-approved, other smart ways to buy a vehicle include:

  • putting down as much deposit as you can afford (so you can borrow more if you want to buy a better car, or so you can borrow less and pay it off faster).
  • keeping your loan term as short as you can afford (so you’ll pay less interest).
  • researching the market (so you have a good idea of car values).

 

Other car loan FAQS

Is comprehensive insurance compulsory if you get a car loan?

Yes.

Your lender will require you to have comprehensive insurance as a condition of approving your finance. The cost of this insurance will depend on your driving history and experience, as well as the value of your vehicle.

 

Can you pay off a car loan early?

Yes, you can usually pay off a vehicle loan early.

Ideally, you should be able to do it without being charged any early repayment fees. A good car finance broker will be able to recommend lenders who don’t charge early repayment fees.

 

Can you refinance a car loan?

Yes, you can do that if your lender or another lender will approve it.  But you should make sure that the benefits of refinancing outweigh any costs of doing it. The benefits could include a lower interest rate and lower repayments. The costs could include early repayment fees on your existing finance and application fees for a new loan.

 

Can you get a car loan if you’re a student?

Yes, it’s possible. The main thing is that you can demonstrate you can afford your repayments, so you’ll need to have enough regular income.

 

What’s the difference between a personal loan and a car loan?

A personal loan can be used for a wider range of purposes than a car loan. Personal Car Loan Australia (car finance) is obviously used to buy a vehicle. A personal loan on the other hand can be used for a holiday or any other expense.

 

How much are car loan repayments?

This depends on how much you borrow, the interest rate, any fees and the loan term.

 

Is a car loan different to a car lease?

Yes, with a car loan you take ownership of the vehicle straight away, even though you’re paying it off.

With a lease on the other hand, ownership remains with the leasing company. At the end of the lease, you usually have three options:

  • hand the car back and walk away.
  • hand the vehicle back and take out a lease for a new vehicle.
  • make a payment to buy the car at its end-of-lease value (called the residual value). This value (or how it is to be calculated) will usually be specified in the lease.

 

Can you get a car loan if you’re on Centrelink payments?

Yes, it’s possible. You can find out how here.

 

Can you get a car loan if you have bad credit?

 Yes, it’s possible. You can find out how here.

 

What is a chattel mortgage?

Yes, if you’re running a business. A chattel mortgage is a business car loan. You can read more about how to get a chattel mortgage here.

 

What do you need to apply for a pre-approved car loan?

You usually need to supply the following information:

  • ID documents that contain your current address, such as your driver’s licence.
  • proof of your income (such as your recent payslips or your most recent tax assessment).
  • a budget of your monthly income and expenses to show you can afford your loan repayments.
  • a statement of your current assets and liabilities. Assets are anything you own. Liabilities are any debts you owe.

You can find out more about getting vehicle finance here.

 

The bottom line

Taking out a car loan is a big financial decision. If you get talked into the wrong finance, it could end up costing you a lot more for your vehicle in the long run.

You should talk to a car finance broker to help you decide on the right loan for your specific needs and situation. Brokers work for car buyers, not for lenders or car dealers. They’re on your side.

 

How we can help

If you’re looking to buy a new or used vehicle and you need finance, talk to one of our expert brokers at Auto Car Loans. We’ll help you find you a great deal from our panel of over 50 Australian lenders, and we’ll also help you with your application so it’s approved quickly.

Simply call 1300 301 051 during business hours to speak with one of our licensed and experienced vehicle finance brokers.

 

 

 

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