How do you get low interest car loans?
The lowest car loan interest rates will be applied to secured car loans. There are many types of secured car loan that you can learn about in this guide, but all of them will use the vehicle you purchase as collateral over the loan. Collateral on a loan reduces the level of risk presented to a lender when approving your application for finance.
Secured car loans include various levels of vehicle ownership - some will grant full ownership over the vehicle immediately, while others will involve you renting the vehicle from a lender without owning the vehicle.
Lowest car loan interest rates in Australia
|Type of Car Loan||Example Interest Rates|
|Secured Car Loan||From 5.00%|
|Private Sale Car Loan||From 6.59%|
|Chattel Mortgage||From 5.49%|
|Commercial Hire Purchase||From 4.49%|
|Finance Lease||From 4.49%|
|Operating Lease (Rental Agreement)||From 5.10%|
|Bad Credit Car Loan||From 15.00%|
IMPORTANT: These are example interest rates for car loans in Australia and are not indicative of the current rates available. Rates will vary and change from time to time, and for accurate, up-to-date rates you will need to speak to your broker or lender directly.
Are you an employee wanting to salary package a vehicle for work? Read everything you need to know about this type of vehicle finance in our Novated Lease guide.
Best fixed-interest car loans
The best car loan interest rates for a consumer will be fixed - this means the interest rate applied to your loan will remain exactly the same for the duration of the loan term. Fixed-rate interest car loans which provide immediate full ownership of the vehicle will begin at 5.00%. With these loans, you generally cannot make additional repayments or repay the loan earlier than initially agreed.
A brand-new vehicle purchased from a franchise or dealership - i.e. not private sale - will often get you the lowest rates on a car loan. In the example below, you can see how three vehicles purchased from a dealership or franchise may affect interest rates.
Brand-New Car Loan Interest Rates vs Used Car Loan Interest Rates
|Brand-New||2 years old||5 years old|
Important: This is an example and actual rates will vary.
0% car loans - too good to be true?
A car loan with a 0% annual percentage rate (APR) enables you to purchase a car at an agreed price, and make monthly payments on the principal loan amount without paying interest. Sound too good to be true? There are important factors to consider on a 0% car loan, including:
- 0% interest may only be applied to part of the loan term
- You will need an extremely good credit rating to apply
- You will often be unable to negotiate the sale price of the vehicle
- 0% may only be offered on some cars - often vehicles a dealership is desperate to sell
- If you are trading in a vehicle, you may be offered a lower trade-in price
- You may have to agree to a short term with high monthly repayments
Dealerships will offer 0% car loans for two main reasons:
- To clear inventory - a dealership may have had the vehicles on the car lot for a considerable amount of time and is desperate to get rid of them. In this case, they may offer 0% interest to ensure they can clear the remaining stock and purchase new vehicles. The dealership may only may a small profit on the sale, but it will still benefit them to sell the vehicle off.
- To draw in potential buyers - a dealership will know that advertising a 0% car loan will attract customers. However, if the customer doesn’t qualify for a 0% car loan with the dealership, they are already in the mindset of purchasing a car and could be sold on a different vehicle under a standard car loan agreement
Fixed-rate interest is a guarantee by the lender that the interest rate on your loan will not change throughout the loan term.
How can I get the lowest interest rates on a car loan?
You can get the lowest interest rates on a car loan by presenting as little risk to a lender as possible. Rates are directly tied to your risk level - the lower the risk of failing to meet your repayment obligations throughout the term, the lower the available rates.
The lowest interest rates on a car loan are offered to borrowers who fit the profile below:
- Clean credit history
- Regular, stable employment for two years
- Living at the same address for two years
- Financing a brand-new vehicle
- Obtaining the car through a dealership or car franchise
- Able to provide a deposit
How lenders decide if you qualify for the lowest car loan rates
When lenders assess an application for a car loan, they’ll decide if you qualify for approval and assign an interest rate based on a number of factors. Understanding these will help avoid disappointment when trying to get the lowest rate on a car loan, and will include:
- The age of the vehicle - best rates will be for brand-new vehicles
- The type of vehicle - lowest rates will be for vehicles under 4.5 tonne
- The amount you wish to borrow - best rates will be for an amount you can easily repay
- The length of your loan - lowest rates will be for the shortest term
- Your credit history - best rates will be for perfect credit scores
- Your net income - lowest rates will be for stable, high-income applications
- If you own a property - best rates will be for homeowners
Financing a brand-new vehicle and having a perfect credit score are two key factors to getting a low interest rate on a car loan.
What you need to apply
You can apply for a car loan in Australia if you are:
- Over the age of 18; and
- An Australian Citizen or Permanent Resident; and
- Are employed or have a regular source of income
To streamline the application process and get faster approval on a car loan, you’ll need to provide supporting documents that illustrate your ability to comfortably service the loan amount, and prove your identity and income status:
- Proof of identity - i.e. passport or driver's licence
- Proof of income - i.e. payslips
- Proof of your assets - i.e. property title
- Details of any current debts and expenditure
Having all the required documentation prepared before submitting an application for vehicle finance will ensure the fastest processing and approval speed on a car loan.
How to apply
In Australia, you can apply for a car loan with:
- Finance Brokers
- Specialist Lenders
- Non-bank lenders
Applying direct at a dealership will be the most convenient option if you are purchasing a car with them, as you can browse, select, and purchase a car at the same time you apply for finance although you may not get yourself the best deal.
Finance brokers will allow you to choose from various lenders, and provide you with a good selection of options to consider in exchange for a one-time broker fee for their services. They’ll essentially run the entire process for you and make it very easy.
Specialist lenders will often provide a simple online application process and competitive rates, though if you are searching for the lowest interest rates and loan repayments, you’ll need to research non-bank lenders - such as credit unions - and apply direct.
Your own bank will be able to offer you finance to purchase a car, but it is most likely they will offer you a personal loan, this typically comes at a higher interest rate than the secured car loan.
Seen advertised car loans and want to estimate your repayment amount or total interest? Our free car loan calculator is a quick and easy tool you can use to estimate your loan costs.
A personal loan is not the same as a secured car loan. Make sure you understand the difference before agreeing to a loan offered by your bank.
What is the cheapest car loan?
First, answer this: what does ‘the cheapest car loan’ mean to you?
- Cheaper repayments over your car loan term; or
- Lower total interest (cost) over your car loan term
If you want to get cheaper repayments on your loan, you can consider:
- Choosing a longer term
- Including a balloon payment
- Buying the newest model car you can afford
- Avoid using a broker or intermediary like a car dealer
If you want to pay a lower amount of interest, you should consider:
- A shorter-term car loan
- A car loan that allows you to make additional repayments; and
- Pay-out the loan early without penalties
- Go direct to the lender to pay the least amount of fees
Cheaper car loans made possible with balloon payments
Car loans can be structured to include a residual payment - also called a ‘balloon amount’ - which will result in cheaper car loan repayments throughout the term of your loan but will include a large, final payment.
It’s important to realise that a balloon payment will not give you a lower interest rate or cheaper total car loan amount. It will only lower your monthly repayment amount which can often make it the most affordable option in the short term.
If you choose a balloon payment to get cheaper car loan repayments you’ll have a couple of options about what to do at the end of your finance term. You will need to either:
- Pay the balloon amount to the lender and clear the remaining loan amount, or
- Choose to refinance the remaining amount into a new car loan
Balloon Payment Calculation Table
|Loan Amount||Loan Term||Balloon Amount||Interest rate||Monthly Repayments|
Important: This is a hypothetical calculation as an illustration of how balloon payments affect monthly repayment amounts.
Where can I get a cheap car loan?
If you are searching for the cheapest car loan repayments, you’ll need to research and apply directly to non-bank lenders, such as:
- Credit Unions
- Mutual Banks
- Building Societies
Alternatively, you can still apply at a dealership, online with a specialist finance lender, or by using a broker. While applying for a car loan through either of these methods will provide their own unique benefits, it is unlikely to get you the cheapest car loan unless you have impaired credit or a more unique situation which requires their expertise.
For example, brokers and car dealers often charge a brokerage fee to handle your application in addition to the lender’s own fees.
You can use our car loan calculator to quickly see how various loan amounts affect estimated repayments and total interest paid over the term.
How to find cheap car loans
You can find cheap car loans by looking at all the factors that influence your total interest amount, total repayment amount, and your regular repayment amount. These will be influenced by:
- The interest rate on your loan
- Whether your loan is assigned fixed-rate or variable-rate interest
- The establishment fee for your loan
- Any ongoing fees
- Early repayment penalties
- Brokerage fees - if applying through a broker
- Balloon amount - if applied to your loan
If you are considering purchasing a vehicle through private sale, you'll need to understand your responsibilities as a buyer. You can learn more about this process in our dedicated Private Sale Car Loans guide.
The term of your car loan will affect your regular payment amount. The longer the loan, the lower the regular repayment amount. However, you will pay a higher total amount over a longer term than a shorter term. You can see in the table below how a longer loan term affects your monthly repayment amounts and the total amount paid over the term.
Car Loan Amount vs Loan Term vs Total Interest Paid
|Loan Amount||Interest Rate||Term||Monthly Repayments||Total Interest Amount|
If you accept a long-term loan and are able to repay a significant amount early on in your loan term, the amount you save will often outweigh the early repayment penalties. In the example below, we’ve compared three car loans of $30,000, each with a term of 7 years. The early repayment penalty for each loan is $20 per month repaid early.
Early repayment fees vs Interest saved
|Term||Total Interest Amount||Repaid After||Early Repayment Penalty||Interest Saved|
|7 years||$9,277.26||2 years||$1,200||$4,840.82|
|7 years||$9,277.26||4 years||$720||$1,812.11|
|7 years||$9,277.26||6 years||$240||$814.56|
The sooner you repay your loan amount, the greater the amount of total interest you will save.
- The best car loan will be the one most suitable for your personal circumstances - you can learn more about which types may be most suitable in our guide on the best car loans in Australia.
Some car loans can be structured to allow early repayments without penalty. This can be a good option if you need initial lower repayments but plan to repay the loan in full before the end of your term.
Car Loan Interest Rates Summary
Lenders will offer various interest rates to car loans in Australia depending on the profile of the borrower. The rate applied to your loan will depend on your credit history, employment history, the age of the vehicle and the type of lender you apply with.
The lowest interest rate car loans available are not always the cheapest. You can reduce the amount of interest you will pay on a car loan by choosing a loan that you can comfortably meet repayments for over the shortest term possible.
In summary, car loan interest rates in Australia:
- Are lower for brand-new vehicles
- Are lower for shorter term loans
- Are lower if you have a perfect credit score
- Are higher for private-sale vehicle purchases
- Can be as low as 4.49% for some business car loans
- Can be as low as 5.00% for personal car loans
Car Loan Interest Rates FAQ
What is the lowest interest rate on a car loan in Australia?
The lowest interest rate on car loans in Australia vary depending on the type of vehicle finance you wish to apply for:
- Secured Car Loan - From 5.00%
- Private Sale Car Loan - From 6.59%
- Chattel Mortgage - From 5.49%
- Commercial Hire Purchase - From 4.49%
- Finance Lease - From 4.49%
- Operating Lease (Rental Agreement) - From 5.10%
- Bad Credit Car Loan - From 15.00%
Will bad credit affect car loan interest rates?
Yes. If you have bad credit, you can expect higher interest rates for your vehicle finance. However, you can still get a car loan if you have bad credit, which will generally be offered by lenders as a product called a Bad Credit Car Loan, or second-chance car finance.
Where can I find the lowest car loan interest rates?
The lowest car loan rates will be offered by non-bank lenders and will require you to apply directly. Banks may also offer low interest rates on vehicle finance, and using a broker will allow you to compare offers to try and find the lowest rate.
Does the type of vehicle affect car loan interest rates?
Yes. The vehicle you wish to finance will influence the interest rate applied to your loan. A brand-new vehicle will generally get you the lowest rates - for each year a car is used beyond brand-new status, the rate will increase.
How can I pay lower interest on a car loan?
The two easiest ways to make sure you pay the least amount of interest on a car loan is to agree to a loan with the shortest term that you can comfortably afford to service. Alternatively, you can choose vehicle finance that allows you to make early repayments, and pay off your loan early to limit the total amount of interest paid over time.
Who offers cheap car loans?
Cheap car loans are offered by a variety of lenders in Australia, though the cheapest car loans will be found by applying directly to Credit Unions, Mutual Banks, and Building Societies. When considering a cheap car loan, take into account any fees that may accompany your application, such as establishment fees, broker fees, and ongoing monthly fees.