If you are looking to get a car loan, the interest rate may be one of your biggest concerns. Since it will determine your monthly repayments, the lower the interest rate is, the better. Is it possible to get a low interest car loan here in Australia?
The answer is a big YES! How low the interest rate can be will depend on different factors. Most of those factors are under your control…(sort of). The prevailing market rate and economy are also factors, however, there is nothing you can do about those. Let’s discuss those factors that you do have control over.
Factors that affect car loan interest rate
Secured or Unsecured Car (Personal) Loan – Secured car loans have a lower interest rate because the car serves as security should you be unable to make your monthly repayments.
New or Used Car – New cars have a lower interest rate because they are considered to be “low risk” as compared to used cars. It is easier for the financing company to resell new cars should they be repossessed.
For used cars, the age and condition of the car is also a factor in determining the interest rate. Generally, the car should not be older than 12years at the end of the loan term except if you’re financing an exotic or classic car. This is not set in stone so double check with your broker or your bank or your lender.
Repayment period – Payment terms are generally from 12 to 84 months.
Fixed or Variable Interest Rate – Fixed rate means you pay the same interest throughout the loan term. A Variable Interest Rate may fluctuate throughout the loan term depending on the prevailing market rate.
Income and expenses – These may affect the interest rate but more your chances of being approved or not, regardless of interest rate. Your expenses will determine whether you still have enough money to pay for a new loan.
Credit score – Your Credit Score is one of the major influences on your interest rate. If your credit is good, expect a low interest rate and vice versa.
As discussed, most of the factors above are within your control, so it’s just a matter of getting yourself ready financially;
- If your credit is bad, work on getting a higher Credit Score before applying for a car loan.
- Save for a deposit.
- Buy a new car instead of a used one.
- Check your income to expenses ratio and see whether you have room for an added monthly payment.
- Save some money in the bank. This shows how well you manage your finances.
Low interest car loans are not out of reach especially if you prepare for it. If you need assistance, you can seek the help of a finance broker and they can help you through the process. One of the good things of working with a broker is that you benefit from their expertise and most are partnered with many lenders so you get to compare quotes.
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