Car Loan Interest Rates. Everything You Need to Know
Understanding car loan interest rates is key to getting the best deal. Learn about fixed vs variable rates and what factors affect your rate. Knowledge is power.
What determines the interest rate on a car loan in Australia?
Your car loan rate is set by your credit history, the loan amount, the age of the vehicle, whether the loan is secured, the loan term and your deposit. Borrowers with good credit are generally offered a lender's sharpest pricing, and advertised rates usually reflect the strongest applicants.
- Borrowers with good credit are generally offered the sharpest pricing a lender has
- Credit score, loan amount, vehicle age, deposit, loan term and employment type all shape your rate
- Secured loans are priced below unsecured loans because the vehicle is used as collateral
- Australian car loans use reducing balance interest, so interest is charged on the balance still owing
- The true cost includes establishment and ongoing account keeping fees, not just the headline rate
- Free assessment with no credit file enquiry until you choose a lender
Reviewed by Simple Loans Editorial Team · Last reviewed
The Simple Loans Editorial Team researches and reviews every car finance guide published on simpleloans.au. Simple Loans holds Australian Credit Licence 509582 and is a member of AFCA.
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How Car Loan Interest Rates Work in Australia
Car loan interest rates determine how much you pay to borrow money for a vehicle. In Australia, rates are typically quoted as an annual percentage and applied to your outstanding loan balance. Understanding how rates work empowers you to make better financial decisions and potentially save thousands over the life of your loan.
There are two main types of car loan rates: fixed rates that stay the same for the entire loan term, and variable rates that can change in response to market conditions. Each has advantages depending on your preferences and financial situation.
Factors That Affect Your Car Loan Rate
Several factors influence the interest rate a lender offers you:
- Credit Score: Higher scores typically qualify for lower rates. A score above 700 generally unlocks the best rates.
- Loan Amount: Very small loans (under $5,000) may have higher rates. Sweet spot is typically $15,000–$50,000.
- Vehicle Age: Newer vehicles (under 5 years) generally attract rates 1-3% lower than older vehicles.
- Secured vs Unsecured: Secured loans (using the vehicle as collateral) offer rates 2-5% lower than unsecured.
- Loan Term: Shorter terms (3-5 years) may have lower rates but higher monthly repayments.
- Deposit Amount: A larger deposit reduces the lender's risk and can unlock better rates.
- Employment Type: Permanent full-time employment may qualify for preferred rates over casual or self-employed.
By comparing multiple lenders through Simple Loans, you increase your chances of finding the most competitive rate for your specific circumstances.
Understanding the Total Cost of a Car Loan
The true cost of a car loan includes the interest rate plus all fees and charges. Always ask for a personalised quote showing your total cost of borrowing, not just the headline rate.
Key costs to ask about include:
- The interest rate and whether it is fixed or variable
- Establishment fees
- Ongoing account-keeping fees
Government charges such as stamp duty and registration are separate. Always review the full loan schedule before accepting any offer. A Simple Loans specialist will walk you through all costs before you commit.
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Frequently asked questions.
What is the true cost of a car loan?
The true cost includes the interest rate plus all fees and charges over the life of the loan. Always ask for a personalised quote showing total cost of borrowing, not just the headline rate.
What's a good car loan interest rate in Australia?
Borrowers with good credit are generally offered the sharpest pricing a lender has. Your actual rate depends on credit history, loan amount, vehicle age, and whether the loan is secured or unsecured. A specialist confirms your personalised rate.
Why is my offered rate different from the advertised rate?
Advertised rates are typically the lowest available and require excellent credit. Your offered rate is personalised based on your credit score, income, loan-to-value ratio, and the vehicle being financed. We compare 50+ lenders to find your best personalised rate.
Does the RBA cash rate affect car loan rates?
The RBA cash rate influences variable car loan rates more directly. When the RBA raises rates, variable car loan rates typically follow. Fixed rates are influenced by market expectations of future rate movements.
What's the difference between a flat rate and a reducing rate?
A flat rate calculates interest on the original loan amount for the entire term. A reducing (or declining) balance rate calculates interest on the remaining balance, which decreases as you make repayments. Reducing balance rates are standard in Australia and result in less total interest paid.
How can I get the lowest car loan rate?
To secure the best rate: maintain a good credit score, provide a deposit (10-20%), choose a secured loan, select a newer vehicle, keep the loan term reasonable (3-5 years), and compare multiple lenders, which is exactly what we do for you at no cost.
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Simple Loans is a finance comparison tool. Holder of Australian Credit Licence No. 509582. All applications are subject to lender approval. Terms, conditions, fees and charges apply. This information is general in nature.