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How to find the lowest car loan rates

Jacaranda Team

Written by - Jacaranda Team

August 27, 2020 9 minute read
How to find the lowest car loan rates

How can I find the lowest car loan rates? 

It’s important to find a car loan that suits your budget and needs. If you only settle for the best car, then you won’t want to settle for anything less than the best car loan. We can help you learn ways to improve your chances of getting the lowest car loan rates and what you should be looking out for.  We can help you understand what methods you can take to have access to the lowest car loan rates. Let’s get started! 

What are car loan rates? 

Car loan rates are interest rates you pay on top of your car loan. Interest rates are expressed as a percentage of your loan amount. Think of them as a fee for borrowing the money. 

There are two types of interest rates. These are fixed and variable interest rates. A fixed-rate won’t change for the entirety of your loan term. This means you can calculate what you expect to pay overall before you sign your contract and commit to your loan. A variable interest rate, on the other hand, fluctuates depending on market rates. 

Is dealer finance a good option? 

Dealer finance may seem more convenient when compared to other options. You may be considering dealer finance for the purposes of purchasing your car and arranging your finances all from the one place. However, the convenience doesn’t necessarily make it the best option for you. 

There are many disadvantages with financing through a dealership. Car dealerships specialise in selling cars, not providing loans. You might not have access to loan features you would usually expect for other lenders. This includes things like flexible repayments terms, the ability to change your repayments and online customer support. 

The majority of car dealers aren’t very flexible in many aspects. For instance, if you finance through a car dealer and decide on paying off your loan early, you will most likely end up paying a large amount in early payment fees. Due to those reasons, if you’re after the lowest car loan rates, dealerships may not be your best bet.

No interest car loans aren’t actually cheap

Have you ever noticed car dealers advertising no interest or 1% interest loans? Although these offers might sound tempting, it pays to read the fine print. These loans often have hidden costs that can trap you into paying high fees. Sure, you won’t be paying any interest, but you could actually end up paying more than a regular car loan. 

What about car loan refinance? 

Are you currently paying off a loan but think you can find a better deal? It’s highly likely the loan you currently have doesn’t have the lowest car loan rates. You can refinance your loan with another lender to pay off your current loan and focus on repaying the loan on better terms. This way you can save in interest and fees.

Maybe your lender does offer some of the lowest car loan rates but you’re not happy with the other terms. In this case, you can still consider refinancing your loan. Although you might incur a small early exit fee (depending on your lender), it’ll be worth being with a lender you’re happy with. 

Does my credit score affect my interest rate?

Your credit score and history do play a role in what loans you’d be eligible for. That also includes loan amounts and loan terms. In order to find the lowest car loan rates, check your credit score to determine whether it’s high enough for taking out a loan. 

Any association with credit in the past 7 years will be included in your credit report. This includes any loan defaults you’ve incurred, loan rejections, and bankruptcies. If any of these are listed on your credit history, it may affect your chances of taking out a loan and therefore could restrict the type and loan amount you’d be eligible for. 

Lenders use your credit score as an indicator of your creditworthiness. Essentially, the best method of achieving the lowest car loan rates is by staying on top of your finances and improving your credit score. 

By being responsible with your finances, you’re essentially demonstrating you’ve got good financial stability. Think of how you can prove that any past financial complications are nothing but a reflection of your past and not your current stability. 

How can I access the lowest car loan rates

Get the lowest car loan rates by illustrating your financial stability through:

  • Paying all your bills on time and in full (e.g utilities, telco, credit cards)
  • Try and minimise as much debt as possible. You can do so by paying off your credit card debt
  • Don’t jump between jobs, try and maintain the same job so that you can illustrate a steady income
  • Maintain a steady savings account. With an up-to-date savings account, lenders will be ensured that you’ll have some sort of funds to fall back on if you lose your job. 
  • Save up for the deposit. If you plan on placing a deposit, the best way to achieve the lowest car loan rates is by paying a large deposit on your loan. 

By following these tips in maintaining your financial stability, you’ll be able to improve your credit rating. As a result, you could access some of the lowest car loan rates.

Other factors to consider

There are many aspects to consider when calculating the total cost of your car loan. Apart from your interest rate, here are some other things to consider when determining the total cost of your loan.

  • Loan term. Are you considering a long loan term for the low monthly repayment? With long loan terms, you will usually end up paying higher interest. On the contrary, shorter loan terms may incur higher monthly payments, however, you’ll be saving money with the interest rate and ultimately end your loan sooner. It might be best to use an online loan calculation to estimate what costs to expect and what loan term would suit your finances best. 
  • Insurance. If you plan on taking out a car loan, you’ll want to consider getting insurance. Much like shopping for a car, you will want to shop around and compare different rates to find the best possible insurance option that’ll tailor your needs and help you save money. 

Other costs associated with car loans

Essentially you want to be considering how costs will affect you in the long run. What costs will you expect with loans? Will they help you save money in the long term? By finding the lowest car loan rates, it’s also important to look out for all additional fees and try and compare different offers until you find one that suits your budget and needs. 

The charges you’d have to pay with low-interest car loans will vary from lender to lender. Below we’ve listed some fees that you can expect to be charged car loan lenders. 

  • Establishment fee: This is a cost that you’d have to pay when setting up any type of loan, regardless of the rates. This amount is usually added into the loan meaning you can pay it off with your principal amount. 
  • Early exit fees: You’ll find that many lenders will charge you a penalty for making a repayment early or paying off your loan before its scheduled end date. This fee covers the interest lost.  
  • Additional repayment fees: Much like early repayment fees, if you make additional payments to your loan, your lender can charge you a fee. 
  • Late payment fees. Almost every lender will charge a fee for any late or missed repayments. Make sure you have enough funds in your account for every payment cycle to avoid the consequences of missing payments. 
  • Other fees. There are monthly fees that are charged on your loan, and these fees are usually for maintenance for your account. 

Please note – lenders may or may not charge all these fees on their car loans. 

Have you considered a novated lease?

Depending on your preferences and financial position, you may want to consider taking out a novated lease. With a novated lease, you may be able to secure lower interest rates. 

A novated lease is a type of finance option that enters you into a three-way agreement with your lender and your employer. Essentially, your employer takes the car loan debt on your behalf and you’d pay them back through your salary. This is otherwise known as pre-tax salary or ‘salary sacrificing’. 

Novated leases may be more beneficial for you in terms of the interest rates that are included. That’s because your employer is perceived as more financially secure than you and they may, therefore, be offered lower rates. This is an option to consider if you plan on finding the lowest car loan rates. Keep in mind, however, that with a novated lease, your car might be entirely used for business purposes. 

What type of cars are low rate car loans best for?

Lenders will not treat all types of cars in the same way. Keep in mind that the majority of car loans are secured, meaning the car you’re financing is considered a collateral asset. In order to cover for the losses if you’re unable to repay the loan, your lender may repossess your vehicle. Not all types of cars will be sufficient as they need to be of a certain value. Therefore, when it comes to finding low rate car loans, it’s best to finance a new or relatively new car. 

What we mean by ‘new car’ is the car that’s less than 2 years old. You may also find some loans that are more focussed on used vehicles, however, even then there are some requirements the car will have to meet. For instance, with used car loans, the vehicle will have to be ten years old or newer. 

Looking for a car loan? We could help! 

If you’re on the hunt for the lowest car loan rates, Jacaranda could be the lender for you. We offer affordable car loans from $5,000 to $35,000 with a repayment period ranging from 2 to 5 years. Our application could take you as little as 5 minutes. Best of all, you won’t be charged a processing fee for applying! So if you’re concerned about getting rejected, know that you’ll be treated fairly at Jacaranda Finance! 

For more general information on car loans, visit the Moneysmart website.


Jacaranda Team

Written by Jacaranda Team

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Last updated: 19/08/2020, 10:00am

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