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
Understanding the difference between cheaper monthly repayments and lower total interest is the first step to choosing your ideal vehicle finance option.
Cheap car loans in Australia
The first step in understanding how to get a cheap car loan is by comparing car loan interest rates. In Australia, you’ll find two types of interest rates:
- The advertised rate
- The comparison rate
The advertised rate is determined only by the interest rate applied to the loan. The comparison rate is a more realistic assessment of the loan cost - it combines the advertised rate and all fees, such as establishment fees and ongoing monthly fees.
The lowest rate does not always mean the cheapest car loan!
|Car Loan Example 1||Car Loan Example 2|
|Car Loan Amount||$30,000||$30,000|
|Advertised Interest Rate||6.00%||7.20%|
|Term (Length)||5 years||5 years|
|Monthly Repayment Amount||$599.98||$596.87|
|Total Amount to Repay||$36,248.80||$35,812.20|
As you can guess, you’ll see the advertised rate far more often when searching for cheap car loans. This is because a comparison rate will be much higher if there are significant fees attached to the loan - which makes them unappealing to borrowers wanting the best deal.
To understand how comparison rates work, and to learn more about various car loan types and their benefits, we’ve created two separate guides depending on how you plan to use the vehicle:
A car must be used for business purposes at least 51% of the time for you to qualify for business vehicle finance.
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 lowest interest rates and cheapest 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 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 Australia car loans calculator to quickly compare various loan amounts and see your estimated repayments and total interest paid over the term.
How to compare cheap car loans
You can compare 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.
Cheap Car Loans summary
To compare car loans and see which is the best car loan for you, you can read our guide on how to choose the best car loan.
The cheapest car loans will often seem like the best car loans to choose from. However, the best car loan for you will depend on your situation and the types of car loan you may be eligible for.
If you are planning to use the car a minimum of 51% of the time for business purposes, you may find a business car loan product is more suitable. They may even be the cheapest car loan due to certain business advantages, such as Chattel Mortgage GST benefits.
A chattel mortgage is a type of equipment finance often used to purchase a vehicle. It can enable a business to reclaim to purchase-price GST on its next BAS.
Cheap Car Loans FAQ
How can I get cheaper repayments on a car loan?
There are two ways to get cheaper repayments on a car loan. You can get cheaper monthly repayments on a car loan if you structure your vehicle finance to include a balloon payment, or if you choose a car loan with a longer term.
How can I pay lower interest on a car loan?
The two easiest ways to make sure you pay the lowest 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.
What is an advertised rate and comparison rate?
Advertised rates are the interest rates that lenders will use to promote their loan packages to borrowers. Comparison rates are more accurate, and take into account all fees - such as establishment fees and ongoing fees - that allow borrowers to accurately assess the real interest rate that will be applied to their loan amount of the term.
What is a balloon payment?
A balloon payment is a large residual payment that is applied to a loan in order to reduce the regular repayment amount throughout the term. At the end of the loan term, the borrower will be required to either pay the large balloon payment to end the loan, or they may be given the option to refinance the balloon into another loan.