Car Loan Repayments 101

Congratulations, you’ve got the keys to your new car, thanks to a car loan. Now, you have to start paying it back. So, how exactly do you repay the loan? 

Whether you’re with Jacaranda Finance or another lender, here’s everything you need to know about the basics of car loan repayments.

On this page:

• How do car loan repayments work?
• Are car loan rates fixed or variable?
• How much are car loan repayments?
• Car loan repayment example
• Tips to reduce your car loan repayments
• What happens if I miss a car loan repayment?
• How can I apply for a Jacaranda Finance Car Loan?

How do car loan repayments work?

When you take out a Car Loan, you, as a responsible borrower, are required to pay back the loan (plus interest) over time through instalments. So, you’ll likely end up owing more than the actual value of the car you’ve bought to the lender, as you’ll be repaying the original loan amount plus interest and fees.

Your contract will outline these repayments, including the amount, frequency, and any other fees you’re required to pay.

Are car loan interest rates fixed or variable?

Most car loan interest rates are fixed, but depending on the loan and the lender, they can be either fixed or variable. Fixed interest rates on a car loan mean your minimum repayments will stay exactly the same for the duration of your loan contract unless you choose to pay more. Your lender cannot increase your interest rate and, therefore, your minimum required repayments if you are on a fixed-rate loan.

This differs from variable interest rates, which can change at the lender’s discretion. Depending on whether interest rates go up or down, being on a variable interest rate can be a good thing.

At Jacaranda Finance, we only offer Fixed-Rate Car Loans, which provide more certainty regarding your monthly budget.

How much are car loan repayments?

Car loan repayments are influenced by a range of factors. The main things that will affect you much you pay are:

• Your interest rate
• The fees on the loan, such as application fees and ongoing fees
• Your loan term, aka how long the loan contract is for
• How much you borrow
• What extra repayments you make, if any

The more you borrow and the longer your loan, the more you’ll pay overall, even if your month-to-month payments are smaller compared to a shorter loan length.

Use our loan repayment calculator to see the difference these factors can make to your estimated car loan repayments. 

What’s the average car loan repayment?

According to the Australian Automobile Association’s (AAA) Transport Affordability Index, the average Australian household (two people) spent $10,929 on car loan repayments annually as of March 2024. 

This makes car loan repayments the biggest ongoing car expense by far, ahead of fuel ($5,129 per year), servicing & maintenance ($1,872), insurance ($2,419) and registration/licensing ($1,739). 

Due to rising interest rates and higher car prices, the average car loan repayment has risen significantly in recent years. Since the previous quarter (December 2023), the average repayment soared by more than $1,000, and is nearly $1,500 higher than the average car loan repyament from 12 months prior!

Here’s what the typical car loan repayments are in each capital city, in order of most expensive to least expensive:

Car loan repayment example

Alistair is in the market for a new car, and finds one that suits his needs worth $20,000. After paying a $5,000 deposit, he decides to take out a $15,000 car loan.

Alistair has a slightly above-average credit score, and after shopping around between different lenders, he settled on a loan offering a 14% interest rate for four years. 

Assuming there are no monthly fees on the loan, Alistair’s car loan repayments on this $15,000 loan would be:

• $410 per month
• $19,675 in total

Here’s how these repayments would change at different interest rates:

Tips to reduce your car loan repayments

Based on the example above, car loan repayments can be pretty expensive. But there are ways you can reduce the cost of your ongoing repayments or even the cost of your loan overall. 

Here are some of the top tips for reducing your car loan repayments:

Put down a deposit on the car

One way to reduce your car loan repayments is to put a deposit down on the car with your own cash before taking out a loan. This will reduce the amount you borrow from a lender and thus the repayments. The less you borrow, the less you’ll pay.

Let’s use the previous example. If Alistair were to pay a $10,000 deposit instead, his car loan would drop from $15,000 to $10,000. Assuming his loan details stay the same, his monthly repayments would fall from $410 to $273, and he’d pay more than $2,000 less overall.

Pay off your loan earlier

Adding more to your repayments or paying it off earlier than your loan contract specifies might sound counterproductive. After all, why would you pay more if you’re trying to pass less?

The answer is that by paying above your minimum repayments, you can pay off your loan sooner and save money on interest payments. By owing less on the principal amount, you’re reducing the actual amount you can be charged interest on. Simple! 

In the example above, Alistair’s repayments are $273 per month. But after a pay rise, he decides to up his monthly repayments to an even $300. By doing so, he pays off his loan four months earlier and saves nearly $1,000 overall!

We encourage customers to pay off their loans earlier if possible so they can get back to driving without financial obligations.

At Jacaranda Finance, we offer extra repayments and early payouts on our loans at no extra cost, helping you save on interest. Learn more about the pros and cons of extra loan repayments here.

Add a balloon payment

A balloon payment is a lump sum a borrower can opt for when they receive a car loan from a lender. The balloon payment is taken off the purchase price of the car, making it cheaper upfront. It is then presented to the customer at the end of the loan term as a lump sum payment. Depending on the size of the loan and the balloon, this could be thousands of dollars, which can be quite a lot to repay at once.

Though Jacaranda Finance does not offer balloon payments when a borrower takes out a car loan, many car lenders may. These lenders sometimes offer balloons up to 50% of the car's value.

The advantage of taking out a balloon payment is that you will have reduced repayments. The disadvantage lies in the payment itself. 

Shop around for cheaper rates and fees

Ultimately, the interest rate you pay and the fees associated with the loan will have the biggest influence on the size of your car loan repayments. 

Don’t just pick the first lender you see. There’s a good chance you’ll find more competitive car loan rates with cheaper fees (or at least one of the two).

What happens if I miss a car loan repayment?

With most lenders, missing a loan repayment will result in a fee, often known as a dishonour fee or late payment fee. Common reasons for missing a repayment deadline include not having a direct debit set up to a linked bank account or not having enough money in the account to cover the cost.

When the team at Jacaranda Finance is notified of your missed repayment, we will endeavour to contact you to discuss what has happened and how we can move forward. If, for any reason, you don’t receive a call from us, get in touch with us as soon as possible. Neglecting to contact us as soon as you know you have missed a repayment could result in additional fees, interest, etc.

If you think you’ll miss a future repayment, also contact our customer service team at least 24 hours before the repayment date. We offer several options to help you keep your loan on track.

Same-Day Jacaranda Finance Car Loans

At Jacaranda, we understand how important it is to receive your funds in a timely manner. As a hard-working Australian, you don’t have time to waste on needless paperwork. This is especially true if you need a car quickly.

That’s why we make it possible to receive pre-approval on the same day you apply for your Car Loan². Applying takes just a few minutes¹, and once assessed, we could conditionally approve you for a certain amount, giving you the confidence to go out and buy the right car for you without wasting time.

You can even check if you qualify for a loan beforehand without impacting your credit score at all!

Written by - William Jolly

Content Manager

William is the Content Manager at Jacaranda Finance. He has worked as both a journalist and a media advisor at some of Australia's biggest financial comparison sites such as Canstar, Compare the Market and Savings.com.au, and is passionate about helping Australians find the right money solution for them.

You can get in touch with William via williamj@jacarandafinance.com.au.

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