Car Loan Interest Rates Explained

What is an interest rate?

The interest rate is the cost of borrowing, shown as a yearly percentage of the amount owed. It is one part of the total cost of a car loan, alongside any fees and charges.

Fixed and variable rates

• Fixed rate: stays the same for the loan term, so repayments are predictable. Most car loans in Australia are fixed.
• Variable rate: can move up or down over time, so repayments may change. Some variable loans offer more flexibility with extra repayments.

Advertised rate vs comparison rate

The advertised rate is the interest rate alone. The comparison rate combines the interest rate with most standard fees and charges into a single figure, based on a set loan amount and term. Australian lenders are required to show a comparison rate alongside advertised rates, which can make it easier to compare loans side by side. Keep in mind it may not include every fee, and actual costs depend on your loan.

What can affect the rate offered

• Your credit history
• Your income, employment and existing debts
• Whether the loan is secured against the vehicle
• The age and type of vehicle
• The loan amount, term and any balloon payment
• The size of your deposit

How rates affect total cost

Even a small difference in rate can change the total amount repaid over a loan term. Using a calculator to compare a few scenarios can show how rate, term and loan amount work together.

Fees to look out for

• Establishment or application fees
• Monthly or account keeping fees
• Early repayment or exit fees
• Late payment fees