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Car Loan Interest Rates Outlook: What to Expect
December 17, 2020● 5 minute read●
Car loans fall under the broad category of personal loans, but they happen to be more specific. The essence of a car loan is to allow the borrower to purchase a car by paying monthly or weekly instalments till they cover their debt. Of course, the lender expects to get back the car’s total worth with some added interest. Both parties of the loan often agree to terms that include variables like the duration of the loan, fees, and the interest rate.
However, the official rate is not subject to the whims of the lender solely. On the contrary, the Reserve Bank of Australia has a way of monitoring the lending space by exercising some control over the fixed and variable rates applicable to car loans. So lenders must pay attention to policies that come from the RBA and act accordingly. As a borrower, paying attention to developments in car loan interest rates can help you take advantage of prime opportunities and save you some money. In this post, we discuss the latest interest rates and give you an idea of what to expect in the coming months.
What’s peculiar about 2020?
This year saw an increase in the number of people to take out personal loans to buy a car. Strict social distancing mandates passed because of the coronavirus pandemic are primarily to thank for this rise in figures. The halt in most transportation services, including those involved in importing vehicles, was also affected, meaning that the supply was unable to meet demand. So naturally, the price of cars went up, some by almost as much as 25%. What’s unusual about the ballooning prices is that earlier this year, the RBA cut the official cash rate by 15 points.
How are lenders affected?
With such a slash, you would expect the average interest rates to drop, but on the contrary, most lenders retained their standard variables. Of course, that isn’t the rule; some financial agencies did make cuts to their rates. The MOVE bank, for example, dipped their fixed rates to 4.59%. The Auswide Bank offers an even more competitive rate, retaining the highest spot on the list of low rates for another month. Currently, they stand at 4.49%, maintaining that number from the previous month. But that’s still pretty low. In fact, as of December 2020, it’s the lowest fixed rate you’ll find on a used car loan. Amazingly, green cars are even lower than that; loans.com.au, for example, has a fixed rate of 3.97% trying to save the planet pays off.
The Australian Military Bank is among the institutions that increased their basis points, putting their variable rates at 3.99%, the same level as the Northern Inland Credit Union. It’s still lower than Goldfields Money, which after removing 15 basis points stand at 5.44%, which isn’t bad. That’s still one of the most competitive rates for used cars.
What does this mean for my car loan?
Typically the best time of the year to get a car is in the last few months of the year. Most car buyers tend to make purchases around October and later months. The Federal Chamber of Automotive Industries reports that car sales decline is gradually slowing down, meaning more people are getting their own set of wheels. It’s a good sign of recovery and that lending space is growing more receptive to borrowers.
Furthermore, changes so far are mainly attributed to a difference in variable rates. Fixed rates haven’t changed much, and that could point to rates remaining static or even dropping as time progresses. People interested in green cars have the luckiest right now, with fixed rates falling below 4%. It might be time to consider going environmentally friendly with your ride if you want to take advantage of those kinds of deals.
Is it better to get a car loan from a bank or a dealer?
It’s difficult to decisively say which is better for car loans because it depends on a couple of factors. Sometimes people prefer to opt for dealer financing because the dealer takes care of everything for you. There’s an added advantage to that, especially when you hire the right dealer. Some dealers provide loan comparison services, which can take a significant burden off your shoulders. By giving you options, you have the opportunity to select the most beneficial terms for you. Others also inform you about promotional opportunities where you can get lower rates of even 0%.
The downside of going with a dealer is that they’re sometimes more expensive. For example, the ones that offer door-to-door services often add an extra fee that might be significantly higher than what you would get from a bank. If you don’t mind coughing out a little extra for their services, then a dealership is not a bad idea. However, if you’re not willing to front the money for the costs, it’s best to go with your bank. Specific banks offer discounts if you already have a financial agreement with them, so it might be worth looking into that avenue.
How can I get 0% interest on a car loan?
A 0% offer probably sounds too good to be accurate, but in fact, they do exist. But you should be aware that it’s not as clear cut as it sounds. More often, down not, it’s merely a sale gimmick by dealer financers to get customers. The car and the fees usually cost more, so you might end up paying less with a regular car loan. It’s also hard to get such APR without a high credit score, and the down payment required is often sizeable.
With the slight increase in variable interest rates, it might be tempting to opt for one of these offers. But it’s vital to bear in mind that many of them aren’t what they appear to be, and weighing all your loan options is essential. The future of car loan interest rates looks promising, so don’t feel pressured to rush into anything. Take your time to research and select the best option for you and your wallet.
Written by Jacaranda Team