Interest rates
The first step for many is to compare interest rates. There are two parts to a car loan interest rate: the advertised rate and the comparison rate. The advertised rate is just the interest rate you pay on the loan, while the comparison rate combines the advertised rate and the main fees, including any upfront and ongoing fees. Consider taking different advertised rates and different comparison rates into account when making car loan comparisons.
Fees and charges
Car loan fees and charges can have a big impact on the overall cost of the loan, meaning the loan with the lower interest rate won't necessarily always be the more cost-effective option. Fees typically include the following:
- Application fees, also known as upfront fees
- Establishment fees
- Account-keeping fees, such as monthly fees or ongoing fees
- Early repayment fees
- Extra repayment fees
- Early exit fees
- Redraw fees
Features
Features offered by different car loan products can vary, and some lenders may charge borrowers extra fees to access certain features. Consider comparing all available features to ensure your preferred product is right for you. These could include:
- Fixed or variable: You will need choose between a fixed interest rate or variable rate for your new car loan. There can be benefits and disadvantages to both options, so be sure to weigh these up before making your decision.
- Extra repayments: Some products will allow for extra repayments in addition to your regular fortnightly or monthly repayments. This feature can be helpful if you want to pay your loan off faster and potentially minimise interest costs. However, there can be a limit on extra repayments.
- Redraw facility: If you are interested in having the option to make extra repayments, you may also be interested in finding a loan with a redraw facility. A redraw facility enables you to redraw any additional payments you have made on your loan, which can come in handy if you need to access some extra cash down the track. Be aware that there can also be a limit to how much you can redraw, as well as a fee charged each time you redraw.
Loan term
The loan term is the length of time you have to pay off your loan. Car loan terms most commonly range between one and five years, but some lenders may offer more flexibility. Ultimately, it's important to choose a car loan that you can repay comfortably, over a period of time that suits your needs. Consider using RateCity's Car Loan Calculator to get an estimate of how much your car loan repayments might cost on different terms.
Loan type
You will also need to choose between a secured car loan and an unsecured car loan. Lenders will typically charge higher interest rates for unsecured loans because they regard them as riskier than secured car loans.