Who doesn't love a bargain? Minimising costs when searching for a car loan is a key part of the process. 

Finding the ‘cheapest’ car loan to suit your needs and budget doesn’t have to be a challenge. There are a few tricks you can learn to ensure you find the right car loan at the right price. 


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How to find the cheapest car loan

When it comes to finding a cheap car loan, start with comparing interest rates. The lower the rate, the less you'll need to pay back in interest expenses over the life of the loan, especially if you repay the loan quickly. However, there is much more to a car loan than interest rates Here’s what you need to consider: 

Fixed or variable rate 

If you fix your car loan, the interest rate will remain steady during the fixed period even if rates rise across the market. However, you won't enjoy any savings if interest rates fall as your repayments will remain the same. 

If you choose a variable rate loan, your repayments could drop if interest rates fall. However, don't forget that your repayments will increase if your lender raises their rates – which could happen at any time with a variable loan. 

Secured or unsecured loan

Secured car loans tend to have lower interest rates than unsecured loans. By using an assetusually the car, as collateral for the loan, the lender knows it can repossess it if you default on your repayments. This makes lending money to you less risky.  

Some lenders only offer secured car loans to borrowers who are buying new cars or used car models under a certain age. If you don't meet that criteria, you may not be able to get a secured loan with a lower rate. 

Extra repayments feature

Some car loans allow extra repayments. Making extra repayments and repaying a loan earlier means you’ll pay less in interest charges. This allows you to make a car loan even cheaper.  Keep in mind that some lenders charge early exit fees if you pay your car loan off early. This lets them make up for the interest they'll be missing out on if you repaid the loan over the full term. 

Length of the loan

Want an affordable car loan? Consider what's more important to you: cheaper repayments in the short term, or paying less in interest costs over the longer term. Car loans can typically be paid back over one to ten years. 

The length of your loan will influence the affordability of your repayments and total interest paid. A longer car loan term means you'll be making more repayments over time, but they’ll be smaller than if you repaid the loan over a shorter periodHowever, this also means being charged interest on more occasions, increasing the total amount you'll pay the lender.  

Shortening the term of your car loan will boost the size of your repayments and each one will repay a greater loan amountHowever, the faster you pay off your car loan, the less you'll pay in total interest. 

Ultimately, you'll have to decide what's more important to you - cheaper repayments now or paying less in total interest. In other words, each person needs to decide on their own definition of a cheap car loan. 

Costs to consider when searching for the cheapest car loan

In addition to the interest rate, there are many costs and fees associated with a car loan. Some are inescapable, but you can avoid some, saving you money in the long run. These fees can include, but are not limited to: 

  • Application fee 
  • Ongoing fee (e.g. annual fee) 
  • Late payment fee 
  • Break cost fee (if you pay off the loan before full term is over) 
  • Discharge fee

It’s worth comparing all of a loan product’s fees and charges in order to get a clear picture of the true cost of the loan.

How much will your car loan repayments be? 

You can use a car loan calculator to estimate your car loan repayments and vary loan amounts to determine affordabilityThis is a helpful tool to see whether a loan suits your budget.  

Car loan amount Monthly repayment amount (no ongoing fees) Total cost of loan (no ongoing fees) Monthly repayment amount (including ongoing fees) Total cost of loan (including ongoing fees)
$10,000 $210 $12,600 $220 $13,201
$15,000 $315 $18,900 $325 $19,502
$20,000 $420 $25,200 $430 $25,802
$30,000 $630 $37,800 $640 $38,403
$40,000 $840 $50,400 $850 $51,004

Note: Calculations based on interest rate of 9.5 per cent and loan term of 5 years. Ongoing monthly fees are $10. Does not include upfront costs.  

Using this example, you can also see the impact of ongoing fees on the total loan cost. In some instances, you’ll end up paying hundreds of dollars extra. Using RateCity’s car loan comparison table, you can click on the ‘more detail’ button to view all of a loan’s fees.  

Which is the best bank for a cheap car loan?

The best bank for you will depend on a range of factors, and not necessarily be the best option for another borrower. You need to do your research around what you want in your car loan.  

Even if you find a bank which offers the lowest car loan interest rate, that's no guarantee you'll be getting the cheapest possible deal or decent service. A car loan with a low interest rate but high ongoing fees and charges may turn out to be more expensive than a high interest rate alternative where minimal fees are charged. 

Comparison rates vs advertised rates

To get a more accurate idea of the relative costs of different car loans, check out the comparison rates, which combine each loan's advertised interest rate with its standard fees and charges. That way, you'll be able to tell if a cheap car loan really is cheap. 

Keep in mind that even the comparison rate won't include every additional cost, such as any non-standard fees and charges. It's also worth looking beyond the comparison rate and working out whether the features and benefits of different car loans will provide greater value to you. 

Comparison tables are a useful tool that helps you narrow down the best bank options that suit your requirements. Apply your criteria to the filters and you can narrow down your search. Find and compare loans that suit your budget and needs. 

Are you the ideal borrower? 

It’s important to keep in mind that while you’re looking for the best bank, the banks are looking for the ideal borrower.   

Your definition of a cheap car loan might be one with low monthly repayments and a low interest rate. So how do you get a low interest rate? One way is to make yourself less of a risk in the lender's eyes. 

How to know if you’re an ideal borrower: 

  • You have a very good to excellent credit score 
  • If rates increased by 2 per cent to per cent above what you’re currently paying you could still meet repayments 
  • You have a steady income  
  • You have your expenses under control (credit card debt etc.) 

Your credit score will show lenders how much risk you pose to them as a borrower, based on your credit history. Excellent credit scores will help you get the lowest interest rate possible.

If you have a less-than-average credit score, a lender may charge you a higher interest rate on your car loan. This helps them to account for any potential losses if you were to default on the loan. There’s also a risk they may reject your application altogether. 

Frequently asked questions

Can I get a discounted student car loan?

Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.

Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.

As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

What is an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

What are loan repayments?

Loan repayments are the regular payments you make to pay off your car loan. Loan repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

Can I get a car loan with poor credit?

Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

What is a loan-to-value ratio?

The loan-to-value ratio, or LVR, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have a loan-to-value ratio of 75 per cent. Loan-to-value ratios change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the loan-to-value ratio would now be 67 per cent.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

What is collateral?

Collateral, or security, is an asset you agree to surrender to a lender if you fail to repay a loan. Generally, the collateral for a car loan is the car itself. So if you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

Can I get a car loan with bad credit?

Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

What is an LVR?

The LVR, or loan-to-value ratio, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have an LVR of 75 per cent. LVRs change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the LVR would now be 67 per cent.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

What is CTP insurance?

CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.